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U.S. Dollar Doomsday Crash 2010, Protect Your Wealth With Gold

Currencies / US Dollar May 03, 2010 - 10:33 AM GMT

By: Larry_Edelson

If you think that what’s happening to the bankrupt economies of Greece, Portugal, and Spain are merely a sideshow in this great financial crisis, it’s only fair to warn you:

The facts I reveal in this bulletin are shocking … shameful … and, to anyone who cares as much about this nation as I do, deeply disturbing.

If these facts upset you, I apologize — but for the past 32 years, my mission has been to help investors protect themselves and profit in every imaginable investment environment.

I am not about to stop now — because in investing as in life, only the truth will set you free.

Yes, I’m well aware that the revelations I make in this bulletin are almost certain to make me some extremely powerful enemies in Washington. And in China, too! But for that, I am NOT sorry.

Frankly, I’m mad as hell about the shellacking our government has planned for you … for me … and for millions of other honest, hard-working Americans …

And I absolutely refuse to stay silent while good people are stripped of their life savings, investments and even the retirement funds that are due to them — and by our own leaders!

The simple truth is …

The next phase of Bernanke’s Debt Solution is already under way, jointly engineered in Washington and Beijing.

Now, if it’s hard for you to believe that our own leaders have turned on us … that they are intentionally attacking your wealth and financial independence … and that they have already begun executing their plan … I certainly understand …

But please; for your own sake and for your family’s safety … hear me out.

Washington’s Guiltiest Secret

Ask anybody about how much Washington owes and they’re likely to say the national debt is somewhere around $12.8 trillion. But as shocking as it is, that massive number is just a fantasy — a tiny fraction of the gargantuan amount our government really owes.

In fact, our real national debt is nearly TEN TIMES GREATER!

In addition to that official $12.8 trillion national debt, Washington has written $108 trillion in off-budget, unfunded IOUs on Social Security, Medicare, Medicaid, its prescription drug program, its veterans benefits programs and its Federal pension programs that must also be paid.

That’s more than $120 trillion — and that’s not even counting the $1 trillion the new health care bill will cost us … or the trillions in NEW deficits projected over the next 10 years.

The plain truth:

Altogether, our leaders have obligated us … our children … and our children’s children … to pay off an utterly unpayable $127.8 trillion in debt.

Global Investors in U.S. Treasuries Are Recoiling in Horror

Until recently, we could count on overseas investors to buy our treasuries — effectively loan Washington the money it needs to pay its bills. In fact, foreigners fully fund over HALF of our borrowing addiction, holding $9.7 trillion in U.S. securities — including almost $4.6 trillion in bonds.

Meanwhile, the foreign investors who purchase treasuries — who have loaned Washington the money it needs to stay in business — are horrified at our leaders’ inability to manage the nation’s finances … wondering if we’ll be able to make good on our obligations to them … and starting to snap their wallets shut.

In November 2009, for instance, China — the world’s largest investor in U.S. government debt — became a net SELLER of treasuries.

The very next month — in December 2009 — China sold a whopping $34 billion worth of U.S. government bonds. Others followed suit: Net overseas holdings of short-term treasuries fell by $53 billion.

And in January 2010, foreign net purchases of U.S. Treasury securities plunged a shocking 69.8%. Japan, the second-largest foreign holder of U.S. debt, was also a net seller in January.

In February 2010, Beijing sold yet ANOTHER $11.5 billion of U.S. Treasuries, making that four consecutive months of dumping U.S. bonds.

Why? Because …

Washington’s debts have finally reached the point of no return: They are absolutely, positively UNPAYABLE!

We have reached the point of no return. The simple truth, of course, is that Washington will never repay the full $127.8 trillion it owes.

Think through the alternatives …

1. CAN WE BORROW OUR WAY OUT OF DEBT? Virtually impossible. As we’ve seen, foreign investors who have loaned us the money that Washington needs to stay in business are already fed up. They’re worried that we’ll never be able to repay what we owe them. They’re now becoming net SELLERS of treasuries.

So it’s nearly impossible that they’ll be willing to throw trillions more of their money our way. Plus, even the mere hint that Washington was trying to borrow trillions more would crush bond prices and light the fuse on an interest rate explosion that would kill the economy.

2. HOW ABOUT MASSIVE SPENDING CUTS? A snowball’s chance in hell! The White House and Congress will continue doing what they’ve always done and what they’re doing right now: Finding dozens of outrageous new ways to waste your money and plunge us even deeper in debt.

Meanwhile, Washington WILL make a show of addressing the crisis by delaying the retirement age for Social Security from age 65 to 68 and by reducing benefits.

But how does that help you? It doesn’t. It just dilutes down what you’re already owed even more!

So if you’re looking for any meaningful cuts in wasteful spending in Washington, forget about it. Any real cuts needed to make any noticeable dent in the government’s $127.8 trillion debt would probably cause riots in the streets and guarantee a quick end to the career of every politician who voted for them.

3. COLOSSAL TAX INCREASES: Sure — the Obama administration will raise your taxes. But even the White House says that the most startling proposals would only generate an additional $43 billion in revenue.

But $43 billion is only 3% of our $1.6 trillion annual deficit …

And it’s only about one-third of one percent of the total $127.8 trillion Washington owes. At that rate, it would take 300 years to repay our government’s debt with new taxes!

In fact, it would take new taxes of $1.1 million for every U.S. household to pay off this debt. Of course almost nobody has that kind of money — and besides: Taxes representing just a fraction of that amount would surely kill this feeble recovery, drive unemployment into the stratosphere and light the fuse on a Great Depression that makes the last one pale by comparison.

And that leaves Obama and Bernanke with one and ONLY one alternative …

Converting YOUR Wealth into “Collateral Damage”

When war strategies to vanquish enemies wind up killing innocent civilians, it’s called “collateral damage.” Similarly, when political strategies to vanquish debt wipe out your wealth, the same term applies.

And right now, President Obama and Fed Chief Bernanke know that there is one way — and ONLY one way they can ever hope to make good on their massive debt obligations: They must devalue the U.S. dollar!

Only then can they hope to repay Washington’s debts — by doing it with cheaper dollars.

Sure — Obama and Bernanke also know that by doing so, they’re also gutting the value of every dollar you earn, spend, save, invest and plan to use in retirement. But they think they have no choice.

To allow Washington to default on its debts and obligations would almost surely cause the entire U.S. economic house of cards to collapse — and the blame would land squarely on the Obama administration’s shoulders.

You? You’re little more than collateral damage. If the only way to delay default is to rob you of everything you’ve worked for and everything you’re counting on to see you through retirement — that’s evidentially just fine with them.

And this is precisely what our government has been doing — by intentionally debasing our own currency in two, distinct phases …

DOLLAR DOOMSDAY 2010 — PHASE ONE:

Flood the World with Unbacked Paper Dollars!

Money is subject to the laws of supply and demand just like any commodity. If you want to lower the price, simply increase the supply. Just do that and the buying power of the greenback will plunge.

Sure — your bank statement may still say you still have $25,000 … but in truth, when you go to spend that money, it only buys as much as $18,000 … or $15,000 … or $12,000 used to.

Because the value of your money has been stolen from you.

And this is precisely what the Fed has been doing in Phase One of this great dollar disaster …

• Just in the last two months alone, the Fed has agreed to create $1.25 trillion out of thin air to buy mortgage-backed securities … including another $300 billion to buy U.S. Treasuries alone.
• The liabilities on the Fed’s balance sheet have roughly DOUBLED — from $1.2 trillion a year ago to more than $2 trillion today …
• The actions announced by the Fed in March are most likely to expand that to well over $3 trillion over the next year …
• And from September 10, 2008 to March 10 of this year, Bernanke has increased the nation’s monetary base from $850 billion to $2.1 trillion.

That’s an irresponsible, irrational and insane increase of 2.5 times in just 18 months — and you must not underestimate its sweeping historical significance:

Nearly 218 years ago, Treasury Secretary Alexander Hamilton established the dollar as America’s national currency when Congress passed the Coinage Act of 1792.

Since that memorable date, the United States has suffered through one pandemic, two great depressions, 11 major wars, and 44 recessions. Four U.S. presidents have been assassinated while in office. Hundreds of thousands of businesses have gone bankrupt; tens of millions of Americans have lost their jobs.

But not once has the U.S. government ever resorted to the kind of extreme abuses of its money-borrowing and money-printing power we’re seeing today!

DOLLAR DOOMSDAY 2010 — PHASE TWO: Default by Devaluation

You’ve probably been hearing a lot lately about how overvalued the Chinese yuan is and how that gives the Chinese an unfair trade advantage … how hard the Obama administration has been working to convince Beijing to raise the yuan’s value against the dollar in order to level the playing field.

The only problem is, it’s all a lie. The truth is, the average Chinese worker earns a tiny fraction as much as American workers do. Even if the yuan DOUBLED or TRIPLED in value against the dollar, Chinese products would still be far cheaper on world markets than U.S.-made products.

So what’s the real reason why Washington is so desperate to have China INcrease the value of the yuan?

Simple: By doing so, they will be automatically DEcreasing the relative value of the dollar — and they’ll be able to repay China, and everyone else who owns treasuries or is owed money by Uncle Sam using CHEAPER dollars!

Don’t think it’s going to happen? Well, let me tell you something:

For the last nine years I’ve been warning that China would keep the value of its yuan extremely low — so it could keep its exports cheap, build up a massive trade surplus with the U.S. and a huge pile of cash.

But I also warned that, as soon as it had a big cash hoard and a strong enough domestic consumption to sustain its economy WITHOUT such massive growth in its exports to the U.S., it would let the yuan get stronger, driving DOWN the value of the U.S. dollar.

Now that day has come. Indeed, China has no choice but to go ahead with a yuan revaluation — and dollar devaluation. And today, it won’t negatively impact China nearly as much.

Reason: Beijing has been preparing for this the entire time — by gobbling up natural resources left and right, not only for strategic supply needs, but also to hedge against the inevitable dollar devaluation.

So the steps are now in motion and we’ve already seen the first warning signs. On April 14, when Singapore, for the first time in its history, pushed the value of its currency higher. Next, look for the Korean won, Malaysian ringgit, Indian rupee and Taiwan dollar to begin rising rapidly against the dollar.

Soon, you can expect the biggest shoe to fall on the U.S. dollar when China ends the yuan’s peg to the greenback and allows its currency to move higher.

And with each and every revaluation, YOUR dollar is worth LESS!

Make no mistake:

This is nothing more and nothing less than highway robbery and YOU are the intended victim!

The greenback has already plunged as much as 33% in real, trade-weighted terms since its 2002 high. By that measure, every dollar in your wallet … in your savings account … in your brokerage account … and in your retirement account is worth only 67 cents.

Since November 2008, the U.S. Dollar Index has dropped more than 10%. And since just the first of this year it’s even shed almost 5% against our northern neighbor the Canadian dollar.

The handwriting is on the wall: This great dollar disaster is only just beginning. Obama and Bernanke have no choice. Either they dramatically devalue the dollar over the next three years, or they go down in history as the first administration to default — to welch on the government’s debt obligations.

Still, as serious as this administration is about gutting the value of your money, the dollar has two ADDITIONAL strikes against it that virtually guarantee it will soon be little more than a hazy memory …

The U.S. dollar: Not Worth the Paper it’s Printed On

My forecast: This great dollar disaster will continue — with minor short-term pauses and corrections in the decline — for at least the next two to three years.

At the very least, the dollar will sink so low and inflation will soar so high that you will eventually need at least TWICE the income you have now just to survive. A lifestyle that costs you $100,000 per year today will be $200,000 or more.

And, as the dollar dives, if global confidence is totally shattered, it’s likely to get much worse: In 1923 Germany, inflation was so rampant some people fed marks into their stoves, because they burned longer than the amount of wood they could purchase with the worthless paper.

In 1970s Brazil, inflation was so rapid that merchants had to close their stores at mid-day to mark up prices on merchandise.

Whether inflation becomes this severe in the U.S. or not, I am certain it will NOT be limited to our inflation experiences of years past. Those were caused strictly by higher energy prices, soaring wages or shortages in select commodities.

The coming hyperinflation will be triggered by many of those forces PLUSthe death of the dollar as the world’s reserve currency … a collapse in confidence in the U.S. government … and the ensuing stampede of global investors out of the dollar — into things that protect them as the dollar careens into the abyss.

That will affect you in ways most people haven’t even begun to fathom. It will mean …

• The purchasing power of your money will collapse like a house of cards.
• The prices of the most basic goods and services will soar.
• Savers will be left in the dust as the value of their cash implodes.

But for those who truly understand history, the profits could be almost boundless — and found in every corner of the globe!

For those who know what YOU now know … and who take steps immediately to protect their wealth, this great crisis could be a Godsend.

How to Protect Your Wealth in Three Simple Steps

Step 1: Avoid The Worst Investment of All Time.

Your first step is to keep LESS cash dollars on hand than you would in almost any kind of other crisis! Why?

Because cash, quite simply, is about the worst place to put your money when the dollar is being deliberately devalued.

Don’t believe me? Consider what famed investor Warren Buffet recently said about cash …

“Today people who hold cash equivalents feel comfortable. They shouldn’t. They have opted for a terrible long-term asset, one that pays virtually nothing and is certain to depreciate in value.”

And this is not new. It’s been that way for cash for a very long time. For instance, today it takes …

— $6,167.83 to buy what $5,000 bought just ten years ago

— $27,319.59 to buy what $5,000 bought in 1970

— $44,075.92 to buy what $5,000 bought in 1950

Even a McDonald’s hamburger — which cost a mere 57 cents in 1959 — now costs $4.29, an increase of 653%, or just over 13% per year. A little over six years from now a Big Mac could cost twice that, or $8.58, if not more.

Because …

A) This the worst financial crisis since the Great Depression, and …

B) Washington is now doing more to deliberately devalue the dollar more than at any other time in our country’s history.

So what do you do with your cash? Do you keep most of it in CDs, money market funds, notes or bonds, Treasury bills?

My answer: No way because whether it’s in money markets, bonds, or hidden under your mattress — cash dollars are quickly becoming trash.

My rule of thumb: KEEP NO MORE THAN SIX MONTHS WORTH OF LIVING EXPENSES IN CASH. To pay bills, to pay for basic services, for emergencies. (And the more cash you can keep in NON-U.S. dollar accounts, the better. More on this aspect in a moment.)

I repeat: Not a penny more than six months worth of cash. That way, you’re automatically reducing the damage that can be caused to the purchasing power of your money as the U.S. dollar falls — because, plainly and simply, you’re keeping a minor fraction of your money in the dollar!

Step 2: Avoid these allegedly “safe” investments.

The irony of today’s world of fiat money is that, often times, even some of the “safest” of investments can become the riskiest.

Consider the following …

• Dollar-Denominated Certificates of Deposit (CDs). Used by millions of retirees and conservative investors — deemed “even safer” today due to the FDIC’s higher $250,000 coverage — CDs are just as bad an investment as cash.

The problems: Penalties for early withdrawals, for one thing, and paltry rates for another.

Example: Say you invest $250,000 in a one-year CD is government-insured right now. But you’re only earning 1.6%, and if you need that money, for whatever reason, you’ll get hit with a penalty that will wipe out your earnings.

But the biggest danger of all is the U.S. dollar. Suppose the dollar falls just 10% in the next 12 months?

Well, guess what! You earned 1.6% but lost 10% of your money’s purchasing power — a net LOSS of 8.4%! Your $250,000 is now effectively worth $229,000.

Safe investment? Hardly!

The same can be said of money market funds, and even short-term U.S. Treasury bills and Treasury-bill funds. Yes, you can pretty much count on getting your money back, but not the purchasing power of that money. BIG DIFFERENCE.

• Traditional savings and checking accounts. Forget them, other than for perhaps your six months of emergency cash. Although insured, the yield is effectively zero and there’s no protection against the falling dollar.
• Bond and bond funds: These are potentially even worse than cash because A) your investment is denominated in dollars, and those dollars will be losing purchasing power, no matter what the yield is on bonds, and B) with mountains of debts crushing the U.S. — bonds are most likely going to crash. You could easily lose another 20% or even 30% of the principal you invest in the bond market.

Taken together, if the dollar loses just 10% of its purchasing power in the next 12 months and bonds lose 10% as they fall, you’re effectively looking at a 20% loss.

A lousy investment indeed. And the same applies to Treasury notes, any Treasury with a maturity of more than one-year, most corporate bonds, municipal bonds, and most sovereign bonds.

In other words, stay the heck out of bond market!

Step 3: Dump Stocks in These Most Vulnerable, Dollar-Sensitive, Stock Market Sectors

You don’t want to be in the stocks of companies that will see their revenues, earnings and balance sheets destroyed by the dollar’s demise. You’ll lose your shirt on them.

My recommendation: With few exceptions, dump the stocks you own in the following five sectors:

— Pharmaceutical stocks

— Bank stocks

— Insurance company stocks

— Utility stocks

— Tech stocks

Reason: Most are especially vulnerable to rising inflation and interest rates.

Three Investments Likely to Keep Your Money Safest in 2010

So what then do you do with the cash you have above and beyond your six months of emergency dough?

My recommendations:

1. Inflation-adjusted Treasuries, or TIPS — but only for the short-term. Don’t plan on putting money in TIPS and keeping it there for much more than a year. They will underperform inflation and the loss of purchasing power in the dollar because they are based on the jerry-rigged and absolutely fraudulent inflation figures put out by the government via its Consumer Price Index (CPI). And in the end, they are also bond investments.

However, since they do offer you some inflation protection, and since you can own them short-term and they are very liquid, they are worthy vehicles for holding most of your cash. At least when your cash is not invested making you big money, which I’ll get to shortly.

One of my favorites: The iShares Barclays TIPS Bond Fund (TIP).

An ETF, which means you can get in and out easily, this investment has had a one-year total return of 8.27% … a three-year of 6.15% … and a five-year total return of 4.43%.

Overall, a great place to put some of your cash — but I repeat, only when that cash is not invested per my profit strategies below. Keep in mind, as an ETF, this investment is also subject to market fluctuations, meaning the potential for both gains and losses.

One way to help eliminate the downside risk in the bond market now, while holding an ETF like the above for greater returns that you can get just about anywhere else with your cash — is to simultaneously buy an inverse bond ETF that gains when interest rates rise and bond prices fall.

That way, you’re market neutral. So if you want to reduce risk of owning a short-term bond ETF like TIP, consider buying the Direxion 10-Year Treasury Bear 3x Shares (TYO).

Since TYO is a triple-leveraged ETF, for every $100,000 you invest in the iShares Barclays TIPS Bond Fund (TIP) — invest only about one-third that, or $33,000 in the Direxion 10-Year Treasury Bear 3x Shares (TYO).

Overall it reduces the yield you earn a tad, but it goes a long way to protecting your principal. Keep in mind though that I recommend this type of investment for your idle cash, but only for short-term purposes, since you are still exposed to a falling dollar. Another choice for big cash that’s ideal, though an investment that’s not as liquid as the above, is …

2. EverBank’s Commodity Basket CD: Available in three- and six-month terms, this CD is comprised of four currencies from commodity-based countries, and invests 25% equally in the Australian dollar … the New Zealand dollar … the Canadian dollar … and the South African rand.

They yield about 2% right now … there are no monthly account fees … the minimum investment is $20,000 … and they are FDIC insured.

Overall, a nice contra-dollar investment, but again, only for short-term three- and six-month purposes. You should not tie up your cash in long-term CDs. Not now, and probably not later either!

3. The World’s Only Real Money: Forgive me for being so blunt, but I can think of no other way to convey the urgency of what I have to say now: If you don’t own gold, you’re not only being screwed by Washington, you’re screwing yourself!

Don’t think of gold as speculation. It’s not. Gold has proven its value. It has maintained its purchasing power for five thousand years. And it’s outperformed cash by light-years. Consider the following …

• $5,000 in cash squirreled away in 1913, when the Federal Reserve was created, is now worth only 4.5 cents. That’s right, 4.5 cents. Or, put another way, it would take $110,582.14 of today’s money to buy what $5,000 would have bought in 1913.

On the other hand …

• $5,000 invested in gold in 1913 would be worth $287,500 today!

So whereas cash lost almost 99% of its value since 1913 … gold gained 5,650%!

Pick just about any other 20-year period, and you’ll find a similar relationship. Cash is a lousy investment, while gold is the only true form of money that has not only held its value, but also kept pace neck for neck with the decline in the purchasing power of the dollar.

So, that’s not speculation in my opinion. That makes gold the ultimate insurance policy, the ultimate protection. The ultimate form of money.

But don’t just run out and buy gold, because buying gold the wrong way could be a costly mistake.

I recommend that all investors keep up to 12.5% of their total liquid net worth in physical gold and gold ETFs, further divided in half per the following allocation …

A. Gold Bullion: I prefer the one-, five- and ten-ounce gold ingots and bars purchased only through the most reputable of dealers. Store it in your bank’s safety deposit box. It’s simple, safe and worry free.

B. The SPDR Gold Trust (GLD). This exchange traded fund (ETF) owns the physical gold for you, letting you have a share without the storage hassles. Each share of the GLD equals 1/10 of an ounce of gold.

I repeat: Between the above two, I suggest you allocate up to 12.5% of your investment portfolio to gold bullion and GLD immediately. Do not wait. But that’s just the FIRST step toward profiting from the dollar’s decline …

Five Investments Set to Soar as the Dollar Dives

Also, invest in assets that are going to benefit from what Washington is doing to the dollar, including …

1. Select foreign currencies, which are rising in value against the dollar, and where you can also get a nice return. Two of my favorites right now are the New Zealand and Australian dollars.

2. Select foreign stock markets, especially those that are rich in natural resources and where billions of new consumers are driving their economies upward. Examples: China, India, and most of Southeast Asia.

3. Select natural resource companies that control huge amounts of commodities now in great demand … the very same commodities that are also rising in value as the dollar plunges.

The list includes not only gold but also oil … gas … iron … steel … aluminum … zinc … nickel … uranium … wheat … corn … soybeans … sugar … coffee … even water.

4. Select gold stock mutual funds: My favorite funds: Tocqueville Gold Fund (TGLDX) … U.S. Global Investors World Precious Minerals Fund (UNWPX) … and the U.S. Global Investors Gold and Precious Metals Shares (USERX).

5. Select gold mining shares. But beware: You should not buy just any gold mining company. Many don’t have enough gold to make it very far.

Or, they hedge their gold and won’t profit as gold continues higher. Or, they’re just plain mismanaged. Or all three.

Instead, buy the cream of the cream — not only big, senior miners, but also highly leveraged, well run, mid-tier producers. Plus, don’t miss out on up-and-coming gold exploration companies, the ones that will be the next giants in the industry.

Best wishes and God bless,

Larry

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Comments

Dean Bonkovich 16 Aug 10, 00:55

The Destruction Of The US Dollar Probably some of the best advice I have ever heard following what I know of the financial system as it currently stands.