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Published: October 28, 2010
The past five days
were the worst of my entire career. No, nothing's wrong with our
business, it's doing well. We're having our best year ever, in
fact. And no, it wasn't a bad week because of my stock picks -
they're doing fine, too. Many of my long-standing predictions
about silver, gold stocks, GE, etc. are coming to fruition.
That's the problem, actually...
This week was the worst of my career because too many things
that should NEVER happen in U.S. capital markets happened this
week. The U.S. Treasury Secretary promised not to devalue the
dollar... immediately before leaving to attend a G-20 meeting,
where the primary agenda is lowering the exchange value of the
U.S. dollar. This is terrifying... As soon as our creditors
finally realize we're not going to stop printing money, we'll
suffer a huge run on the dollar. I've been warning about this
constantly since 2008, in a series of essays called "The End of
America."
None of our leaders - Democrat or Republican - seem to
understand that, as the world's largest debtor, we're playing
with fire when we expand the Fed's balance sheet. Why? Just look
at the numbers. Currently, the total debt - that's public,
corporate, and personal - in the United States is more than $60
trillion. That's $186,000 per person in the United States or
$750,000 per family. Last year, total debt increased by $3
trillion - roughly eight times faster than GDP. Normally in a
recession, you'd expect to see total debts fall. But not here.
Our government believes it can borrow an unlimited amount of
money and then print more to repay it. That's like lighting
matches next to gas tanks.
We can't solve our country's problems with more debt. Why not?
Diminishing returns - one of the core ideas of economics our
leaders have never considered. As the debt load grows, it takes
more debt each year to produce growth. In 1960, it took roughly
$2 in new debt for each $1 in growth. By 1980, it took $2.25. By
1990, it took $3. By 2000, it took $3.50 in additional debt to
finance $1 in additional economic growth. It now takes $5 in new
debt for each $1 in economic growth.
As you will hopefully
understand intuitively, we can't sustain this trend. But that
won't stop our politicians from adding, massively, to our
country's debts. And eventually, people will figure out we can't
ever repay these debts. At that moment, the value of the dollar
will simply disappear.
Once a country has used up all its credit, its Treasury
Secretary begins to say things like, "We will never devalue..."
That's a sure sign devaluation is right around the corner. And
even though I knew it would happen here... I'm not happy to see
it. It means terrible things for our country. I hope you've
already acted to protect yourself.
Another reason I've had such a bad week? The more money the Fed
prints, the easier it is for banks and large institutions to
game the system. This report shows exactly how Goldman Sachs and
other big banks have been front running the Federal Reserve.
Their game is simple: They know exactly when the Fed is going to
enter the market to buy securities. So they buy right in front
of them and make totally risk-free profits - 11% so far in the
last year.
That might not sound like much, but because it's risk-free, the
banks can apply massive leverage. Even eight- or nine-times
leverage produces nearly 100% total returns - risk-free -
courtesy of our "friends" at the Fed.
This kind of thing should never happen in the world's leading
capital market. But it is happening. What does that mean about
our markets? Or our country? It's too depressing.
-- Porter Stansberry
Founder
Stansberry & Associates
Note: This article originally appeared on
The Daily Crux |
