Debt Load
Whenever someone tells you he believes we are exaggeratingthe risks of our government’s debt load and itsdependency on “quantitative easing” (aka printingmoney), show him this chart. This chart demonstratesthe collapse of the purchasing power of our currency, asgold (GLD) rises. And it shows the corresponding collapsein the credit of the U.S. government, as bonds(TLT) fall.Just to be clear about this… We are not rear-lookingexperts. We have been warning about these issues frequently(almost continuously) since December 2008.Here’s what we wrote back then
:None of the government’s bailout plans will solveany of the problems. The government can onlyshift the burden of the failures. Instead of bondholdersand shareholders being wiped out, taxpayersare put on the hook. These actions willtemporarily resuscitate the economy – but cause apermanent decline in the value of the dollar…inflation will wipe out much of the value oflong-dated U.S. government bonds, causing theirprices to plummet.
In that issue, we told folks to “buy as much gold bullionas you can reasonably afford.” And we explained whyyou’d never have a better opportunity to buy gold stocksagain in your entire life. (We recommended the goldstock exchange-traded fund, GDX). We reiterated theseviews and explained these trends again in our January2009 issue… and in our January 2010 issue. If youhaven’t read these issues, please go back and reviewthem… today. If you don’t find our End of America predictions
We’re repeating these warnings again today because the market for U.S. Treasurys recently “broke down”through an important level. The decline seems to beaccelerating. World food prices soaring offers still moreevidence that something unusual is happening. Foodprices and the market for U.S. Treasurys are negativelycorrelated (as you can see in the chart below). That is, asfood prices rise, U.S. Treasurys fall. We know there’s afundamental reason for this: food, around the world, ispriced in U.S. dollars. As people begin to fear inflation,they buy food and sell U.S. Treasurys. Judging by foodprices, the market for U.S. Treasurys is about to collapse.
When we began writing about the looming collapse of the bond market and the risks to the U.S. dollar, a lotof people called us “right-wing nutjobs” or “gold bugs.”That’s not the case. This letter was founded (in 1999) onthe idea the Internet would change our lives in a profoundway. We write about the biggest financial trendswe can understand – whatever they happen to be. Wehave always strived to understand the facts and allow thefacts to dictate our view. Now, three years after we firstpredicted the collapse of the Treasury market, more andmore people have discovered these facts. They can lookaround and see with their own eyes what’s happening.Our ideas have gone from fringe to mainstream.(Interestingly, we tried to run a television ad warning