Traditional Investment Strategies - EXPOSED !!

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Table of Contents
The Real Inconvenient Truth .............................................................................................4 Chapter 1: The Cause of the Decline of the Dollar ...........................................................5 Chapter 2: Why Traditional Investment Strategies Dont Work ......................................11 Chapter 3: The Risk of Inflation ......................................................................................13 Chapter 4: Summary ......................................................................................................19 Appendix ........................................................................................................................22
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The Real Inconvenient Truth: Its the dollar thats melting, and your retirement funds along with it!
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Traditional investment strategies judge their returns relative to the performance of the market (the S&P 500). If the market looses 50%, and they only lose you 45%, they actually think they performed well! In addition, they do not adjust for inflation, or for the declining value of the dollar. Did you know that since 2001 the US Dollar If you find this report interesting, please Forward it to a Friend has lost about 40% of its value? This means that dollar for dollar, your dollar based assets have likewise lost 40% of their value, in real terms. That is called wealth destruction, but it is stealth, because most people do not realize what is going on.
Most investors would just like to make money, regardless of the performance of the market and the value of the dollar. They want to learn how to protect themselves against the destruction of the dollar, how to create wealth no matter what happens in the stock market, and how to prosper in times of inflation. At The Financial Freedom Foundation, we will show you how to do just that. At no time have the investment opportunities been greater than today, if you know how to make money in this market. The Financial Freedom Foundation shows you how to make money in this market.
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Chapter 1: The Cause of the Decline of the Dollar
Similar to how a share of stock is a measure of the value of a company, the value of the US dollar, relative to other currencies, is a measure of the economic strength of the United States and its Governments ability to repay Federal loans by taxing its citizens. As of 2009, our Federal Government uses all of the tax revenue just to pay for its mandatory expenses. Most of the discretionary expenses are covered using money borrowed from foreign creditors or using money newly created by the Federal Reserve. This is a major cause for the decline of the dollar. The US economic growth over the past decade has been due primarily to credit expansion, for when you pour water into a bucket, all the toy boats float. Credit expansion has the effect of further weakening (diluting) the domestic currency. Growth through credit expansion is not sustainable. When something is not sustainable, it eventually stops. When credit expansion slows down and real economic growth does not fill in the gap, then the domestic currency begins to collapse.
Fact: In 2002 the US Dollar entered into a long-term downward trend. The primary cause of this trend was that the US posted a 4.5% deficit to GDP ratio, which historically meant that the country posting such a deficit would experience a currency crisis. The Congressional Budget Office (CBO) stated that in the best case scenario, the US deficit is going to average 4.5% of gross domestic product (GDP) for the next 10 years. In fact, the Office of Management and Budget projects massive deficits for the next 70 years!
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Fact: Not one penny of US government debt has been repaid since 1971. It has simply been rolled over when it comes due (refinanced), and new deficit spending has been borrowed as well. The United States is now running monthly deficits the size of what used to be yearly deficits! Some economists say that deficits dont matter, but if that were really the case, then there would be no need for taxes.
Fact: Last year, the U.S. Federal Government borrowed about $10,624 for every man, woman, and child in America, on top of the taxes it assessed.
Fact: In 2010, the U.S. Federal Government alone issued almost as much new debt as the rest of the governments of the entire world combined!
Fact: The 2010 US Deficit was $1.3 Trillion. The 2011 US Deficit is expected to be $1.5 Trillion. According to the Congressional Budget Office, the current economic and social policies will lead to deficits averaging nearly $1 Trillion for the next 10 years.
Perspective: If you earned $10 per second, it would take you 3,169 years to earn $1 Trillion dollars.
Perspective: If you were to spend $1 Million dollars, every single day, since the birth of Christ, you still would not have spent $1 Trillion dollars by now.
Perspective: The key to economic growth is capital reinvestment into the most productive resources. However, government is an inefficient allocator of resources. Government habitually removes capital from the most productive resources and reallocates it to unproductive resources or to elite capitalists who help the reigning
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politicians get re-elected.
Fact: As of January 15, 2011, the Federal Governments cumulative debt (US National Debt) is already $14 Trillion (www.usdebtclock.org ).
Perspective: The US Government is already borrowing money in order to pay interest on the national debt. A 3% increase in interest rates would raise the annual interest payments on this debt by additional $400 billion per year.
Perspective: A $14 Trillion dollar national debt means that if youre a tax payer, the government has already spent $126,880 of your money that it hasnt even collected it from you yet!! The worst part is that you owe most of that money to foreign creditors.
(At no time have the investment opportunities been greater than today, if you know how to make money in this market. The Financial Freedom Foundation shows you how to make money in this market.)
Fact: Foreign creditors, mainly China and Japan, own over 50% of the US debt.
Perspective: In 1956, Britain joined France and Israel in seizing the Suez Canal after Egypts nationalization of the waterway. Because the US owned most of Britains national debt, President Eisenhower threatened the Brits that America would ruin the pound sterling if Britain did not withdraw from the Suez Canal. If that is how your friends can treat you when you owe them money, it is not difficult to imagine that lessfriendly states could do the same to you, too.
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Fact: Freddie Mac & Fannie Mae have about $6 Trillion of debt on their books. Since they were nationalized, that debt was taken on by the US Government, making the current US National Debt almost $20 Trillion dollars in actuality!
Fact: According to even the most conservative measures, our US National Debt already totals about 90% of our gross domestic product (GDP).
Fact: Total debt in the United States, including government, corporate, and personal debt, has reached 360% of GDP.
Fact: The amount of past US Federal debt that is maturing in 2011, combined with the new issuance totals approximately $4.2 trillion dollars.
Perspective: That is $4,200,000 million, in 2011 alone! This averages out to about $16,000 million dollars per day! Even scarier is that most of the IOUs created to finance this deficit have short term maturities, meaning that it will have to be refinanced again in just a couple of years. All of this debt is being loaded onto the back of US citizens as debt slaves.
Fact: The Federal Reserve is now buying 75% of the newly issued Government debt, because no one else is willing to buy it. This is how the US dollar is created out of thin air, is spent, and then is obligated to be repaid by you. This lowers the purchasing power of the dollar.
Fact: Let us control the money of a country, and we care not who makes the laws -Amschel Rothschild, original head of the House of Rothschild.
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Fact: Government spending creates only an illusion of economic growth, but in reality NO WEALTH was actually created, because the government can only give you what it first takes from you and from future taxpayers, through taxation and borrowing. Whatever the government spends today, it must take from you today or borrow from others, with the promise that your children will repay it tomorrow.
Fact: Founding Father Thomas Jefferson stated, I wish it were possible to obtain a single amendment to our Constitution - taking from the federal government their power of borrowing.
Fact: Gold is money. Gold is real money. Gold is constant. Gold does not change in price, its value is fixed. The US dollar and other paper instruments vary in value relative to gold. The US Dollar and various US Dollar-based bonds are losing value so fast that Gold appears to be rising in a breakout amongst all major currencies (USD, Euro, Pound, Yen). The USD and US Treasuries are in a powerful bubble, at risk of puncture. That possible puncture would be a US Treasury default, with the associated declaration that the US Dollar is no longer valid legal tender to purchase imported products in the world market.
Fact: On Jan. 5, Delegate Bob Marshall, of Virginias State Legislature, pre-filed House Joint Resolution No. 557, which proposes: Establishing a joint subcommittee to study whether the Commonwealth should adopt a currency to serve as an alternative to the currency distributed by the Federal Reserve System in the event of a major breakdown of the Federal Reserve System.
Fact: Since the US Government removed itself from the gold standard in 1971, the
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value of its paper money (the dollar) has lost 97.5% of its value when compared to real money (gold). To see what this looks like, look at the chart below.
Speculation: The 2010 budget release also suggests that the US Deficit could grow to $18.5 Trillion by 2020. Debt interest payments alone would reach $912 Billion per year by 2020, which is over $5,000 for every working person in America.
Perspective: In fiscal year 2008, the spending for interest on the debt was $249 Billion (21.7% of all tax revenues), which was more than the federal government spent on energy, education, environment, veterans benefits, and agriculture, combined.
Fact: 2009 was the fist time that mandatory spending (Social Security, Medicare, Medicaid) exceeded total tax receipts by the Federal Government ($2.1 Trillion), even before any discretionary spending was taken into account!!
Perspective: This means that even if the Department of Education, Defense, were to close, we would still be running a budget deficit, and the baby boomer are just barely starting to retire!! Already about 10,000 baby boomers are reaching retirement age every day. Cutting mandatory spending would be political suicide, even for the Tea
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Party representatives.
Perspective: The US Government has been living off so much borrowed money for so long that eventually it wont even be able to afford the interest payments on those loans!
Speculation: As of January 2010, the sum total of all unfunded government obligations, the governments future expenses for entitlement programs like Social Security and Medicare, is estimated to total $106 Trillion dollars, or $344,000 per citizen. This is roughly 750% more than the National Debt.
Perspective: Our nations total assets equal only $74 Trillion, or $240,000 per citizen. In other words, even if the government were to take, by force, every single penny of wealth from every single private citizen of the US, our nation would still be bankrupt, by Trillions and Trillions dollars! When unfunded obligations are taken into account, our nation is completely broke and is living off of borrowed money. The only question is, Will foreign creditors continue to lend to us indefinitely? When corporations behave like this, their bonds become junk bonds. When an individual borrows 100% of their credit limit, creditors simply stop lending to them. When something cannot continue indefinitely, it eventually stops.
Perspective: California is in such bad shape that for 2009 tax returns, it had to send people IOUs instead of cash. California comprises roughly 11% of the US economy. In
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comparison, Greece, which is causing such headache for the European Union (the EU), is only 2% of the EU economy. New York, Michigan, Illinois and Arizona are not much better off than California, due to their deficits and debt loads. There could be massive side effects if a state the size of California had trouble paying its debts.
Fact: In January 2011, Illinois raised their state income tax rates by 67% in a desperate attempt to balance their $13 billion dollar annual state budget deficit.
Fact: In 2009, 140 US banks failed, which was the highest number of failures since the Savings & Loan crisis in 1992. The FDIC Deposit Insurance Fund has slipped into the red for the first time since 1991. At the end of 2009, the value of the fund was $20.9 Billion in the hole.
Fact: In 2010, 156 US banks failed, eclipsing the 2009 number.
Fact: As of September 2010, there were 860 more US banks still on the FDIC watch list for having failed the grading system.
Perspective: In the entire year of 2007, the FDIC and state regulators only closed 3 banks. In 2006, there were ZERO bank failures.
Perspective: The FDIC already ran out of money once, assessed its members $5.6 billion more in funds, and is currently scrambling for ways to get more money for its insurance fund, so that it can liquidate more banks.
Speculation: According to the head of foreign exchange research at JP Morgan, by
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next year the dollar will have become the worlds weakest currency, due to the Feds monetary easing program.
Fact: The IMF has already reduced the weighting of the Special Drawing Rights basket. China and Russia have suggested that these SDRs replace the US Dollar as the world reserve currency. If the Remnimbi starts trading more freely, it will be included in the SDRs, which would even further reduce the weight of the US Dollar.
Fact: Central banks currently hold 62% of their currency reserves in US$. Only 37% of new reserves are being places into US$ (through the purchase of US Treasuries), and 67% into Euros and Yen. This puts downward pressure on the dollar and upward pressure on the Euro and Yen.
Perspective: Joseph Stiglitz is a Nobel Prize winning economist and Columbia University Professor. The dollars role as a good store of value is questionable and the currency has a high degree of risk, Stiglitz said at a conference on August 21, 2009, There is a need for a global reserve system. The currency reserve system is in the process of fraying. The dollar is not a good store of value. Dollar denominated assets loose value when the dollar looses value.
Conclusion #1: The US Government is living off of borrowed money and the trend is accelerating. Foreign lenders are buying less of the US Governments debt, so the Federal Reserve has to print the money to buy it. State and local governments are facing bankruptcy. Banks are failing at record numbers. Other central banks are quietly selling their USD currency reserves. For these fundamental economic reasons, the US dollar has dropped in value and will continue to drop in the long-term, unless these
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causes of dollar weakness reverse themselves. The long-term decline in the value of the US dollar affects your real wealth. However, with the proper actions, this knowledge can be used to create wealth instead of destroying it. As depressing as the facts are, you can actually thrive in this economic environment. The Financial Freedom Foundation shows you how! Visit us at http://FinancialFreedomFoundation.org
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Chapter 2: Why Traditional Investment Strategies Dont Work
The traditional investment strategy is to buy and hold stocks and bonds. This strategy represents conventional wisdom. This strategy puts you at maximum risk to the whims of the market in return for a very limited potential upside. Conventional wisdom is not always the wisest choice.
The traditional investment approach is based on equity, fixed income, and asset allocation models. Most people have about 20-25 years of wealth creation before they need their funds for retirement income. The March 9, 2009 DALBAR Quantitative Analysis of Investor Behavior found that for the 20 years ending December 31, 2008, equity, fixed income, and asset allocation fund investors had average annual returns of 1.87%, 0.77%, and 1.57%, respectively. The inflation rate averaged 2.89% over that same period. In real terms, each of these traditional investments approaches actually resulted in wealth destruction, rather than wealth creation, even before the loss of purchasing power due to the weaker dollar was taken into account.
Fact: The S&P 500 Index is a collection of the stock values of the 500 largest companies in America and is considered to be the market. On January 2, 2001 the S&P 500 closed at 1,283. Ten years later, on March 9, 2010, the S&P 500 closed at 1,272. Investing in the market (buying and holding the S&P 500) for the last 10 years would have resulted in a 1% loss of value in nominal terms.
Fact: The US Dollar Index in January 2001 was 125.275 and the US Dollar Index on
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January 2, 2011 was 79.31, which is a 36.9% loss in the value of the dollar, in tradeweighted terms.
Perspective: For moneys invested 10 years ago, that equals a combined loss, in real terms, of 37% from following the traditional buy and hold the market strategy. No wonder why people who only follow traditional investment strategies never seem to get ahead!
Fact: The US 10-Year Treasury note, priced in Gold, already shows a decline in value of 50% below its 1995 value, in real terms. US Treasuries are supposed to be a safe investment.
Fact: US interest rates are at a record low. If interest rates increase, the value of safe US Treasuries will go DOWN.
Conclusion #2: Traditional buy and hold investment strategies dont make or preserve wealth. The Financial Freedom Foundation shows you how to create wealth outside of the traditional buy and hold investment strategies.
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Chapter 3: The Risk of Inflation
The Federal Reserves mandate is two fold: 1) maintain price stability [control inflation] and 2) maintain full employment. Its main tool to control inflation and job growth is by raising and lowering interest rates. To create jobs through economic growth, they lower the interest rates. When interest rates are too low for too long, inflation occurs. To combat inflation, the Federal Reserve raises interest rates, in order to slow down the economy, which has the nasty side effect of causing more unemployment. When massive unemployment is of greater concern, then the risk of inflation does not get properly addressed.
Fact: During two years from December 2007 - December 2009, the US economy lost 8,363,000 jobs, according to the payroll jobs data.
As of October 2010, payroll jobs purportedly have increased by only 874,000 jobs. The job shortage is even worse when people coming out of retirement and new job entrants, both legal and illegal, are considered.
Fact: A smaller number of Americans are employed right now than 10 years ago.
Fact: Every time a public sector job is created, 2 private sector jobs are destroyed.
Fact: Ever dollar of economic stimulus must first be taken from us, then given back to us, but at only 50 cents on the dollar, after all the intermediaries receive their cut and taxes are paid.
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Fact: Official Unemployment in the U.S. is 10.2%, as of October 2009. The Underemployment Rate, which includes people with part-time jobs who would like to work full time, is 17.5%, the highest its been since the Great Depression. The number of the Actual Unemployed (known as U-6) is over 26.5 million people, all scrambling to make ends meet.
Speculation: The group Shadow Stats, who uses the pre-Clinton era methodology, shows the real Actual Unemployed number (U-6) to be above 22%.
Fact: On January 20, 2010, the Brookings Institution came out with a warning stating that 30% of the nation was either in poverty already or headed to it. The report stated, The US is becoming like a developing nation, with 39.1 million people living in poverty. Many cities have already reached the 30% poverty rate - including Cleveland, Detroit, Youngstown, Buffalo, Syracuse, Dayton and Hartford, Connecticut. But poverty is increasing fastest in the suburbs.
Fact: About 40 million Americans are also living on food stamps. This is a new record.
Fact: In February, 2010, there were 5.5 unemployed Americans for every job opening.
Fact: Over 40% of those fortunate to be employed are now working in low-wage service jobs.
Fact: The Employee Benefit Research Institute found that just last year, 24% of Americans have decided to postpone their planned retirement age, due to lack of retirement funds.
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Fact: Between 2007 and 2009, of the millions of people who lost their job and found a new job, 36% of them suffered a pay cut of 20% or more. Even those fortunate enough to remain in their jobs have seen wage cuts, and many have even had to assume more duties.
Speculation: A jobless recovery is a contradiction of terms. When people earn less money and cannot borrow money, they cannot possibly spend more money than before. The perceived economic growth is actually inflation, but it is being labeled as economic growth.
Fact: Janet Yellen, the new Vice-Chairman at the Federal Reserve. She has stated, on record, that she is more worried about high unemployment than about rising inflation.
Fact: In order to borrow money, the Federal Government issues IOUs in the form of US Treasuries. The largest purchasers of these IOUs are foreign central banks. If our government needs more money than these foreign central banks are willing to lend us, then the Federal Reserve essentially prints money for our government to spend, through a process called monetizing the debt. When money is printed, inflation occurs. When too much money is printed, hyper inflation occurs.
Fact: Over the past 24 months, according to the Continuous Commodity Index, overall commodity prices have already risen 77%.
Speculation: As price inflation accelerates, it will be incorrectly labeled as economic growth.
(At no time have the investment opportunities been greater than today, if you know how to make money in this market. The Financial Freedom Foundation shows you how to
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make money in this market.)
Perspective: Commodities are upstream. Finished goods are down stream. What starts upstream flows downstream, as companies take this increase in expenses and pass it on to the end consumer, in the form of price increases. The problem is, though, that this inflation is not caused by excess economic activity and excess demand, but rather by governments printing money. Increasing interest rates cannot make this type of inflation go away, like Central Banker Paul Volker was able to do in the 1980s. Even so, inflation and increases in interest rates go hand in hand, because international lenders want higher interest rates to compensate for the expected loss in value of the currency.
Speculation: In order to prevent the US financial system from collapsing, the Federal Reserve has already bought $2.6 trillion dollars of government securities and mortgage backed securities. If interest rates go up just 1%, the Federal Reserve itself could become insolvent, due to the massive losses on these securities. You can track these interest rates by looking at the yield on the US Treasury.
Fact: During the 3 months between November 4, 2010 (when the Federal Reserve began Quantitative Easing II) and February 4, 2011, the yield on the 10 yr US Treasury went from 2.53% to 3.68%, which is a 1.15% increase.
Fact: 12 million US households already owe more on their home than what its worth, and 8 million more have Loan-to-Value ratios of 95% to 100%.
Speculation: A 5% drop in home prices could push an additional 8 million people into
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negative home equity, with risk of millions of people walking away from their current home in order to buy one of the cheap foreclosures across the street.
Fact: Studies show that a 1% increase in mortgage interest rates usually leads to a 5% (average) drop in real estate prices. Over the next 2 years, $1 trillion of commercial mortgages come due and need to be refinanced. If a drop in real estate prices cause these loans to go under, so will the banks that hold them.
Speculation: We have 21 square feet of retail shopping space for every man woman and child in this country. That is double what is needed. The bulk of retail traffic is moving online, which is forcing dozens of anchor retailers to suffer continued earnings losses, such as TJ Maxx, Best Buy, Sears, ToysRUs, Stop & Shop, and the supermarket chain A&P. These are all anchor tenants. When anchor tenants go dark (close their underperforming stores before their lease is up), the smaller tenants in the shopping center tend to go under, too. Hundreds more community banks will close because of these commercial real estate loans that will not be able to rolled over.
Fact: According to Reuters, the amount of residential foreclosures in the 3rd quarter of 2010 increased 10% over the previous year, coming in at a total of 1.2 million foreclosures.
Fact: When pending foreclosures and bank owned houses are taken into consideration, the unofficial shadow inventory of homes is an additional 1 million homes that need to be sold, which postpones a realistic housing market recovery by another 2 years. This added supply could push prices down even further, which could lead to even more foreclosures and more bank failures.
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Speculation: If the US housing boom from 2003 to 2007 caused the entire US economy to boom, then it will be capable of collapsing the same structures, because of the vulnerability of debt. The Federal Reserve took on much of the housing sector losses to prevent the US financial system from collapsing in 2008. The added weight of the continued housing sector losses continues to threaten the soundness of the US financial structure.
Fact: Investors have already demonstrated that they think that the debt of certain corporations is a safer investment than the Federal Governments debt. Berkshire Hathaways most recent 2 yr notes issue yields 3.5 basis points less than the 2 yr US Treasury notes. Bonds issued by Proctor & Gamble, Johnson & Johnson, and Lowes are also being treated by investors as being better credit risks than our Federal Government, because their bonds are trading at lower yields than US Treasuries! This is a very rare occurrence indeed, for US Treasuries usually form the base of the yield curve, serving as the risk free benchmark above which the risk of all other debt investments is measured.
Fact: On November 16, 2010, a 30 year mortgage (4.25%) was cheaper than a 30 yr US Treasury (4.33%). This infers that investors viewed a US homeowner as better credit than the U.S. Treasury!
Fact: The 4 biggest pools of dollars are held by China, Japan, Russia, and India, as
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part of their central banks foreign reserves. Chinas central bank owns $800 Billion in US Treasury notes. Russia has $430 Billion US Treasuries in its foreign currency reserves. Both China and Russia have been actively calling for the creation of a new world reserve currency. All of China, Russia, India and Japan are currently diversifying away from US$ in their foreign currency reserves.
Fact: The global monetary system rests on the shoulders of the sovereign bond market. In November 2010, the Federal Reserve announced it would buy $100 Billion worth of US Treasuries per month, for the next 6 months. This should have caused treasury yields to go down. Instead, after the US Treasury offered details regarding its Quantitative Easing II (QE2) bond purchasing program, the US Treasury yields actually went up, from 2.49% to 3.4%, and bond mutual funds had their biggest client withdrawals since mid-October 2008 when investors pulled $17.6 billion from bond funds. The bond market contradiction to the Federal Reserves monetization plan is without precedent in US bond market history.
Fact: In November, 2010, the leading Chinese credit agency downgraded the sovereign debt rating of the United States from AA to A+, citing the new round of quantitative easing and serious defects in the US Economic Development model as fundamentally lowering national solvency.
Fact: On August 17, 2010, Moodys Investor Service said the AAA ratings of the US, UK, France, and Germany are well positioned, but face new challenges that increase the possibility of a downgrade. The 3 mentioned European countries have already begun pursuing deficit reduction measures. The United States is moving the opposite direction, trying to spend its way out of a recession.
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Fact: On January 20, 2011 a major US credit rating agency, Fitch, stated, Record U.S. Budgets deficits, due to stimulus measures, and a lack of a plan to reduce debt, may undermine confidence in the dollar and raise inflation concern. The U.S. fiscal metrics will be the worst of any AAA rated sovereign.
Fact: On January 27, 2011, a different major US credit rating agency, Standard & Poors, downgraded Japans credit rating from AA to AA-, because it expects the countrys fiscal deficits to stay high in coming years, citing the welfare costs and revenue shortfall associated with a graying population as adding additional pressure.
Perspective: They US has the same indebtedness trend as Japan, and demographic trend as Japan, namely the baby boomer generation just now entering retirement age.
Fact: China has quietly shifted its reserves out of long-dated treasuries with 10 and 30 year maturities, and moved them to treasuries with an average 3 year maturity.
Fact: From September 2009 January 2010, China became a net seller of US Treasuries, over $45 Billion dollars worth. According to Alan Rusking, the Chief Strategist of RBS Securities, Inc., this was a long enough period to hint strongly at a trend. Much of Chinas selling has been in short-dated Treasury bills, but China has not indicated that instead it will buy longer maturity U.S. government notes and bonds. That is the bad news for the U.S. dollar and the Treasury market.
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Speculation: The Fed has stated that it intends to continue to increase money supply by monetizing the debt at an aggressive pace: as much as $1.25 trillion of mortgagebacked securities, $200 billion of federal agency debt, and $300 billion of Treasuries. They are making these purchases in an attempt to keep interest rates at below market levels to fabricate a refinancing boom. While they have been somewhat successful in keeping rates lower than they would be under normal market conditions, these purchases are extremely inflationary and wont be easily reversed. This also creates the illusion of growth.
Speculation: The German governments 5-person council of economic advisers issued a report that said, After the massive global increase in U.S. dollar reserves in the past years, an uncontrolled exit from the U.S. dollar as a reserve currency, especially in emerging economies, is a possible trigger of instability in currency markets. They went on to say... Countries holding high dollar reserves should consider committing to selling their dollar holdings in a coordinated way over a longer period of time.
Speculation: PIMCO, the largest bond fund in the world, announced in January 2009 that they were reducing their exposure to U.S. debt. On January 6th, Bill Gross, of PIMCO, was on TV talking about U.S. Treasuries, how he would rather buy a German bund (treasury) than a U.S. Treasury because of the two completely different directions these two Central Banks are heading.
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Speculation: Kokusai Global Sovereign Open, the worlds 2nd largest actively run bond fund, announced they are also going to shun U.S. Treasuries in 2010.
Speculation: Consumer Inflation, as reported by the Government in March, shows Year over Year inflation at 2.3%. The group Shadow Stats, who uses the pre-Clinton era methodology, shows the real inflation number to be just over 8%. This means that even if no hyperinflation ever occurs, you are currently losing 8% per year in value if you buy and hold paper-based assets.
Conclusion #3: The US is issuing more debt and investors are buying less of it. The new money supply is growing quickly, which could directly lead to greater inflation. Inflation is inevitable and is a form of indirect taxation. Inflation requires you to pay more dollars to buy the same goods. It can either break you or it can make you, depending on how you prepare for it. The Financial Freedom Foundation shows you how to make money, even when there is high inflation.
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Chapter 4: Summary
Problem: If you are a U.S. citizen with all of your wealth in dollar based assets, then your real wealth is dropping as the dollar declines in relative value, and as domestic inflation increases, especially if you only use traditional US stock market and bond market investment strategies. Granted, there might be short-term dollar rallies, as we had for 10 months in 2005, and for the 6 months from August 2008 Feb 2009. However, the long-term trend is for a decidedly weaker dollar, based on current fundamentals, and the short-term rallies always give way to the underlying weak long term trend.
Solution: Now that you know the direction of the economic wind that is blowing, the next step is learning how to set your economic sails. As Jim Rohn said, If you learn to set a good sail, the wind that blows will take you to the dreams you want, the income you want, and the treasures of mind, purse, and soul you want.
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experience in Non-Traditional Investments by joining our Mastermind Group at the Financial Freedom Foundation.org.
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7. Step-by-Step guidance in how to do this, even if you have terrible credit and hardly any seed capital to start with. Leverage Other Peoples Money (OPM), with No Personal Guarantee.
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Appendix
Potential Worst Case Scenario Quote from Ludwig von Mises: There is no means of avoiding the final collapse of a boom brought about by credit expansion. The alternative is only whether the crisis should come sooner as a result of a voluntary abandonment of further credit expansion, or later as a final and total catastrophe of the currency system involved. In other words, if something is not sustainable, it eventually stops.
Many countries have been devastated by debt crises, resulting in economic catastrophes. The US Government could be driving our country down this path by borrowing trillions of dollars from foreign governments who do not have our best interests at heart. This gives them control over us, if they choose to stop buying our IOUs, or if they decide to suddenly sell a large percentage of the IOUs they already own, either out of spite or out of necessity. What will happen if another $1 trillion of mortgages blow up in 2010, or when $1 trillion of commercial mortgages come due in 2011, or if GE cant refinance in 2012, or when China stops buying US treasuries? Here is the url to a video by the National Inflation Association that explores the potential reaction to that very scenario: http://www.youtube.com/watch?v=2N8gJSMoOJc.
We hope that something like this never happens to the United States. For planning purposes, it is important to consider the potential ramifications of todays economic decisions. In the 16 years from 1975 to 1991, Argentinas government printed money in order to pay for its debts. The eventual inflation was so great that if it had happened in America, Bill Gates fortune would be worth only 60 cents. In the 1990s, the Federal
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Government in Thailand had accumulated so much foreign debt that by 1997, the government could no longer protect the value of its currency and within a few months, the currency lost 40% of its value, resulting in at 75% drop in the stock market and 1.5 million people lost their jobs, in a country of just 65 million people. In Zimbabwe, the government printed money to pay its obligations which resulted in inflation at a rate that prices doubled every 1.3 days!
Articles to Read: 1. The Coming Deficit Disaster 2. An Empire At Risk
This quote from the former budget director of the CBO and fellow at the Manhattan Institute, Mr. Holtz-Eakin, in his recent WSJ article titled The Coming Deficit Disaster, sums it up pretty well:
The planned deficits will have destructive consequences for both fairness and economic growth. Federal deficits will crowd out domestic investment in physical capital, human capital, and technologies that increase potential GDP and the standard of living. Financing deficits could crowd out exports and harm our international competitiveness, as we can already see happening with the large borrowing we are doing from competitors like China. The time to worry about the deficit is not next year, but now. From Chuck Butler, President of EverBank World Markets,
An increase in federal debt can be financed in three ways: borrowing from foreigners, borrowing from our own citizens or, through a roundabout process, printing money. Lets look at the prospects for each individually - and in combination.
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The current account deficit - dollars that we force-feed to the rest of the world and that must then be invested - will be $400 billion or so this year. Assume, in a relatively benign scenario, that all of this is directed by the recipients - China leads the list to purchases of United States debt. Never mind that this all-Treasuries allocation is no sure thing: some countries may decide that purchasing American stocks, real estate or entire companies makes more sense than soaking up dollar-denominated bonds. Rumblings to that effect have recently increased.
Then take the second element of the scenario - borrowing from our own citizens. Assume that Americans save $500 billion, far above what theyve saved recently but perhaps consistent with the changing national mood. Finally, assume that these citizens opt to put all their savings into United States Treasuries (partly through intermediaries like banks).
Even with these heroic assumptions, the Treasury will be obliged to find another $900 billion to finance the remainder of the $1.8 trillion of debt it is issuing. Washingtons printing presses will need to work overtime. Slowing them down will require extraordinary political will. With government expenditures now running 185 percent of receipts, truly major changes in both taxes and outlays will be required. A revived economy cant come close to bridging that sort of gap.
The deficits, if unchecked, will ultimately lead the government to put the printing presses in overdrive and we will attempt to inflate our way out of debt. This will cause the value of the US$ to drop. Buffet recently wrote a piece with the following line: Unchecked carbon emissions will likely cause icebergs to melt. Unchecked greenback emissions will certainly cause the purchasing power of currency to melt. The dollars destiny lies with Congress.
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Fact: In 2010, 156 US banks failed, eclipsing the 2009 number.

Speculation: According to the head of foreign exchange research at JP Morgan, by

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Speculation: As price inflation accelerates, it will be incorrectly labeled as economic growth.

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If you find this report interesting, please Forward it to a Friend

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11. 60 Day Full Satisfaction Money Back Guarantee

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Articles to Read: 1. The Coming Deficit Disaster 2. An Empire At Risk

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