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The Debt Crisis: What it All Comes Down To

Courtesy of Expected Returns

The thing I value the most in life is freedom- the freedom to do as I choose (as long as I don’t infringe on anyone else’s freedom) and the freedom to think independently. People often ask me why I don’t want to work in the financial industry. My reply is that I relinquish my freedom as soon as I walk through those doors and don’t be surprised if my analysis deteriorates to the level of the average analyst. Doing this is far more rewarding; I can say as I please and don’t have to answer to anyone. I trade real money. I don’t buy into a 401k program with a company match- then turn around and offer stock-specific investing advice. I have a conscience. When I say “buy the dips in gold and take a walk in the park”, I mean it. This is something I literally do.

Sorry, but that was a long-winded way of saying most analysis is perverted by biases. Everyone has an agenda. How brazen do you think analysts will be in predicting a financial collapse if this implies they will lose their jobs and their hefty bonuses? Let’s get real here. They have blind spots the size of planet earth, and I am exposing them in real-time.

I am currently reading a book about accounting (I know, I’m a nerd). One of the basic accounting games the book says companies play is capitalizing expenses. When I read this line I sat back and thought: “Jeez, our government does the same thing!” It’s called Social Security. The government essentially robs the Social Security Trust Fund, exchanges in a liability (U.S. Treasuries), then carries the liability as an asset. Aggressive accounting that creates a false kind of solvency. I just wonder why more people don’t call out the government on such a fraudulent accounting scheme.

People mistakenly believe the role of a citizen is to support their leaders at all costs. But our Founders said the exact opposite; our role is to act as a check against the government. I am acting as a one-man check against the government when it comes to economics. In the meantime, I am proving that you can make a killing in the market by exposing the truth.

These are serious times. What you will likely see is a demographic clash for scraps of money as our coffers run dry. Boomers will want rising Social Security benefits; younger people will want entitlements in all forms.  Major trends are developing that will totally change paradigms. For example, the higher education bubble is popping. We are already seeing an oversupply of college graduates with degrees in Art History; you will now start seeing an oversupply of LLMs and MBAs. The job market for young people is a catastrophe. Remember when so many people flocked to the “safety” of graduate school 2-3 years ago? Well they’re graduating now, and the economic picture is actually worse. This is something I predicted, and people thought I was crazy at the time. But I think saddling yourself with $150,000 in debt for a devalued degree in a Depression is, umm, a little bit crazier.

Unemployment Rate 16-24 year olds

As a young person who doesn’t expect to see one penny from Social Security, I must say, I don’t fault Baby Boomers for expecting payments; after all, they did pay into the system for years. I think most Baby Boomers genuinely believe the Social Security system as currently structured robs young people. But most Baby Boomers will look after themselves. Unfortunately, most are not adequately prepared for the debt crisis. So truthfully, I feel bad for them. We are coming off the sugar high known as debt-induced asset growth, and Baby Boomers are seeing their net worths vanish. The second leg down in housing is going to crush Boomers. Sales data lead housing prices, and sales are falling fast. Foreclosures are also rising. There’s no other way to put it: this is going to get nasty.

The underlying problem in this debt crisis is that our leaders made promises they could not keep. They promised this and that to various constituencies to garner votes and no one asked: How will we fund these programs? Do people realize the vast majority of our national debt is composed of accrued interest? Let this sink in a second.  This will develop into something major, and it will happen in the blink of an eye.

Now people will argue that the government can always pay its obligations. I agree, they will issue depreciating dollars. But the government will not play fair; they will block your escape routes. Gold is the go-to currency in times of crisis, so I’m not that surprised that a tax on gold was included in the recent Health Care Bill. Again, your government is a joke and I am trying to expose the putrid stench of corruption.

There will be a major collapse in confidence that is going to send gold to new heights. I know it. I feel it. This is what I’ve read about in history. Bread and circuses? How about food stamps and football? How about bailouts and Jersey Shore? So while Americans are watching Jersey Shore and President Obama makes asinine comments about Snooki, believe me, your country is collapsing.

Gold should not be at $1275 in a normal downturn. This crisis is going to be a game-changer. The big money is starting to find its way into gold, and they will continue to flood the gold market as currency volatility develops. Those who think a default on our debt is impossible need to open a book for a change. The second stage of the debt crisis will arrive soon, led by Greece. Greece guaranteed a prolonged Depression by taking IMF and EU money. They will need to break from the Euro and devalue eventually. This will have cascading effects on the global bond and currency markets- and most importantly, this will send gold through the roof. Trust me, this is what it all comes down to. Buy gold to hedge against governments gone mad. Everything else is noise.

Taken from Expected Returns

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