Posted on 04/04/2011 3:04:21 PM PDT by blam
U.S. Will Default On Its Debt
Interest-Rates / US Debt
Apr 04, 2011 - 04:13 PM
By: DailyWealth
Dr. Steve Sjuggerud writes: "I am confident that this country will default on its debt," Bill Gross wrote this week.
Bill Gross is not some anti-American crackpot... quite the contrary.
He manages the world's biggest bond fund. As the founder and chief investment officer of PIMCO, he's responsible for over $1.2 trillion in assets mostly in bonds.
And last month, in his main bond fund, he got rid of all of his U.S. government bonds.
"[I've] been selling Treasurys because they have little value within the context of a $75 trillion total debt burden," Bill said. "Unless entitlements [namely Social Security, Medicare, and Medicaid] are substantially reformed, I am confident that this country will default on its debt."
How would that happen?
"Not in conventional ways," he explained, "but by picking the pockets of savers."
He says the government will pick your pocket through "inflation, currency devaluation, and low to negative real interest rates."
These things are all happening right now...
The currency is already weak... The U.S. dollar index is right around the lowest levels it's ever been since we went off the gold standard in the early 1970s.
We already have low to negative real interest rates... The Fed is artificially holding short-term rates at zero. But officially, inflation is 2%. So your "real" rate of interest at the bank is a negative 2%.
You can hardly blame Bill for not wanting to own government bonds...
Right now, if you're willing to lock your money up for 10 years in a government bond, you'll collect 3.5% every year in interest. The benefit (a small 3.5% interest payment) isn't worth the risks that Bill writes about.
Remember, Bill isn't some wacko. He's the "Bond King" and that nickname comes from decades of extraordinary performance in his bond funds.
If Bill is right, it's dangerous to be a "saver" in the traditional sense... Low-interest bank CDs will have their value eaten away by the government's stealth default on its debts. What to do instead is a story for another DailyWealth...
Right now, the asset class Bill's fund has the biggest exposure to is mortgage-backed bonds (like those held by longtime DailyWealth favorite Annaly). He's putting his chips on a "real" asset as opposed to an asset that's backed by the "faith and credit" of the U.S. government.
U.S. government bonds are no longer good enough for Bill Gross, the best bond manager in history. If they're not good enough for Bill, then they shouldn't be good enough for you or me either.
Stay out of U.S. Treasurys.
Good job FRiend, you’re ahead of me.
I’m well stocked food and ammo wise, have to work on the water though.
I stand corrected, but still, 140% of face is not very sexy compared to pre-65 US silver coins going at 2700% of face.
IIRC US nickels are made of copper/zinc, while Canadian nickels are nickel-plated steel. Canadian nickels were 4.54 grams 99.9% nickel until 1981, 4.6 grams 75% copper/25% nickel from 1981 until 1999.
His take was any major crisis involving insolvency would lead to a much bigger role for the federal government in the economy. What would emerge would be a nationalized banking and credit system (probably disguised as one in which the feds were just stake holders).
The only think I can safely say is there is a crap storm coming and there is no safe port in the storm.
The Fed doesn’t even have to print the money anymore. They just type in some numbers on a computer and call it ‘money’. I recall that of the $19 trillion dollars in existence only about $177 billion is actually in the form of currency.
Much of the debt is short term debt and hence can’t be rolled over unless long term interest rates are low. Long term interest rates will be high if there is a substantial risk of currency devaluation or outright default.
I have about 1/3 of my stock investments in funds that track overseas indexes.
Sure, silver is one of them. Here's a one year performance chart.
mark
Definitely something to think about. History is filled with clever schemers who take advantage of a situation at an opportune time. They all seem to be repressive by nature.
I don't want to be a "global citizen"; I want to go back to our Constitutional Republic as it was meant to be. With the Bill of Rights intact, as the Founding Fathers knew that it was our insurance policy against the King George within.
I feel hopeful when I visit this site; it is reassuring that I am not the only person who feels this way.
“US will default on its debt”
Duh.
We already have emergency food, gold, silver, water filters, fuels, etc., but just realized one other option to consider. Historically one commodity that can be bartered in hard times is wine. I live in Oregon, which has a huge number of really great wineries. My wife and I are going to spend a couple to a few thousand dollars on cases for a wine cellar. This process will involve several overnight trips and wine tasting expeditions. Other options for use of our retirement time will just have to wait, but first things first.
I find it incredible that otherwise rational people are willing to trade things of substance for numbers that run through my credit card and onto a bank statement to be refreshed by other numbers electronically transferred to the other side of the statement.
read about one other thing that is always tradeable and in short supply: pepper
cant remember where i read that, i think it was a sci fi novel recomended here on freeps
Read This:
Why You Need to Own Nickels, Right Now
"There's right now 6.2 cents worth of metal in a nickel [Note the value is now up to 7.2 cents.-RW]."
Glad to help. It’s a very interesting read.
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