Sign up today for an exclusive discount along with our 30-day GUARANTEE — Love us or leave, with your money back! Click here to become a part of our growing community and learn how to stop gambling with your investments. We will teach you to BE THE HOUSE — Not the Gambler!

Click here to see some testimonials from our members!

Weekend Reading – Default or Hyperinflation for US?

Mint Life has a very nice overview of the EU crisis

It’s in 3 parts: Understanding the Crisis, The Counties Involved and The Potential Consequences.  The last article points out the potential danger that nobody likes to talk about but is worth mentioning at least once, lest we forget:

It is worth recalling financial crises have helped install the worst among men into political power. Adolf Hitler, for instance, rode a wave of unrest over Germany’s massive unemployment into the Chancellor’s seat. Joseph Stalin also obtained public support by promising solutions to Russia’s economic woes. Though it’s unclear if another Hitler or Stalin is waiting in the wings, history shows that cunning politicians are fully capable of exploiting financial chaos to everyone’s detriment but their own.

John Reed, who predicts hyperinflation in our future, thinks that default is the only real solution – not just for the EU nations but for US as well.  Face it citizens, we owe $15Tn (ignoring unfunded liabilities, of course) and we are spending $3.5Tn this year and taking in $2.1Tn in tax revenues.  What is the exit strategy here?  Cut spending in half?  Double taxes?  Like John, I think ultimately we have to face up to the fact that we are either going to finally admit we can’t pay this debt and default (as many other countries will have to do) or we will have to inflate our way out of debt (effectively growing GDP to the point where $15Tn is no longer an unpayable amount).  Either way, the people we owe money to are pretty screwed. 

File:Estimated ownership of US Treasury securities by category 0608.jpgUnfortunately, for the US, we owe most of that money to our own people.  Japan owes 80% to their own people and the EU mainly owe money to each other.   Notice on this chart that 1/2 of the outstanding Treasury Debt is owed to the Fed.  No wonder they are so interested in keeping this game going at all costs! 

In a Forbes article titled "Learn to Love A US Default," John (something about Johns) Tamny says: "For Americans to worry about a debt default is like the parent of a heroin addict fearing that his dealers will cease feeding the addiction. In truth, just as the much-needed heroin withdrawals would mark the beginning of the addict’s recovery, so would a cessation on the part of investors when it comes to funding federal waste signal a United States on the mend." 

I think hyperinflation is an easier pill to swallow than default, which is why we love our TBT.  Either way, lending the US government money for 20 years at 3.5% interest so they can run up another $70Tn in debt and expecting to get paid back in dollars where $100 will buy you more than a happy meal in 2030 is madness.  


Do you know someone who would benefit from this information? We can send your friend a strictly confidential, one-time email telling them about this information. Your privacy and your friend's privacy is your business... no spam! Click here and tell a friend!



Comments (reverse order)


    You must be logged in to make a comment.
    You can sign up for a membership or log in

    Sign up today for an exclusive discount along with our 30-day GUARANTEE — Love us or leave, with your money back! Click here to become a part of our growing community and learn how to stop gambling with your investments. We will teach you to BE THE HOUSE — Not the Gambler!

    Click here to see some testimonials from our members!


  1. Great stuff, Phil. Thanks.


  2.  Phil,
     
    Thanks for another great insight – what’s your recommended play on TBT? Also, if there is another leg down, do you expect a ‘run for safety’ like in 2008 that would push yields down?


  3. Phil – What is your thoughts on the latest Iranian ships being sent to Gaza (Tyler article tonight)…further de-stabilization "Black Swan" event for oil prices, etc?
     


  4. “The budget cutting that is dead ahead will be a significant impediment to economic growth later this year into 2011,” he said in an interview.
    That impact will help convince Federal Reserve Chairman Ben S. Bernanke and his colleagues to keep the federal funds rate banks charge each other for overnight loans at zero to 0.25 percent through the end of this year, said John Lonski, chief economist at Moody’s Capital Markets Group in New York.
    http://www.businessweek.com/news/2010-06-13/economy-in-u-s-slows-as-states-lose-federal-stimulus-funds.html

     More stimulus…


  5. I have gone through a hyperinflation in Russia after disintegration of the USSR and it was awful time for all. But we could save partially the money from a hyperinflation in the American dollar. And in what currency will people of the USA  be rescueed?
    I think, that the default (with the protection of all pension accumulation) will be better for people


  6. Good read Phil,
    I don’t see any other way out of this other than hyperinflation.  There’s no way the politicians are going to jeprodize their jobs by doubling taxes.


  7. Good morning all--I certainly don’t have the knowledge of things like most of you do (want to learn all I can from you guys), but I always look for oddities and inconsistencies, that might show changes forthcoming.  So….. has anyone noticed the decrease in volume on the Hang Seng--looks to me like the lowest levels  consistently (starting 6/1/10) since last Dec--and it only lasted a few days then.   Does this mean anything to you all?