From The S&A Digest:
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.
Crux Note: If you haven't already prepared for "The End of America," it's not too late... You can learn exactly what Porter recommends with a subscription to Stansberry's Investment Advisory. Click here to learn more.
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