ARE DOLLARS SAFE?

We live in a society of debt. Our government racks up budget deficits, creates wars we can’t pay for, and starts new entitlement programs we simply can’t afford. Frankly, it’s no wonder that we have an ever-expanding $11.7 TRILLION debt.

Taxes barely begin to cover it all, so we write IOUs to cover our debts. Only in this day and age, those IOUs are known as Treasury bonds.

Now of course, this isn’t a new thing. We’ve been issuing Treasury bonds since 1917. Indeed, we became the most powerful nation in the world by selling our debt to investors both here and abroad. That’s how we efficiently paid off several wars, and a myriad of economic initiatives over the last 100 years.

But then unfortunately, we got a little too smart for that.

In this day and age, we no longer need patriotic Americans or foreigners to buy up all our debt. Sure it’s nice. We appreciate letting other people pay our bills.

But should investors STOP buying Treasuries (i.e. financing our debt), our government has a back-up plan. They’ve figured out a way to actually issue debt, and then essentially pay for it themselves.

In doing so, they not only create more debt. They threaten the dollar’s value. They threaten every single American’s wealth by putting our retirement plans, savings accounts, and every other dollar-based investment we have at risk.

The government does it all through a backdoor known as the Federal Reserve…
Desperate Times Call for More Debt Apparently

The U.S. government had more than their usual share of problems when 2009 started. They needed to pour liquidity back into the markets and did so with their countless bailout schemes (TARP, TALF, etc). They wanted to give investors the confidence to invest in the U.S. markets again.

Now the government had even larger debts to pay. So they issued more Treasuries. To date, the government has issued a whopping 280% more Treasuries in 2009 than last year.

Nothing says “confidence” like someone handing you a 10 or 30-year loan. That’s exactly what a Treasury bond is: A loan to the government. You know, the biggest deadbeat on the block.

One problem: Suddenly, all our savvy friends in China, India and other regions around the world weren’t quite so confident in the U.S. government, or the U.S. economy. They started scaling back their long-term Treasury buying. China started buying 3-year Treasuries at one point rather than longer dated 10-year or 30-year Treasuries.

The timing couldn’t have been worse. We were spending hundreds of billions of extra dollars we didn’t have to, to get banks and institutions moving once again. We needed successful Treasury auctions to keep money flowing. In other words, the Treasury needed to not only sell all the debt it offered, they needed to show there was more demand than could be satiated.

So the Fed rode to the rescue once again.
As Usual, Fed Buys What Others Don’t Want

Fed Chief Bernanke and company currently have a plan in place to spend $300 billion on Treasuries. This Treasury buying initiative is supposed to expire next month. (But have you ever known a government plan to end?)

Even though it seems like the Federal Reserve is closely married to the U.S. government, the Federal Reserve is NOT technically a government entity. So as a central bank, they’re free and clear to buy up U.S. Treasuries if they want to. It’s in their charter (granted by Congress).

This isn’t the first time the Fed has bought Treasuries. In fact, the Fed has been buying Treasuries for years now. But back then, other countries were buying Treasuries too. Also, that was before the Fed’s balance sheet reached $2 Trillion and was stuffed with other debt-based securities.

What will happen if this continues? How much more debt will the Fed be required to buy if others continue to scale back their purchases?

That’s one problem. But here’s the greater issue: The Fed doesn’t really have the money to pay for those Treasuries either….

Internal Sponsorship

“America’s Last Great Bubble Is About to Explode”

“Irrational exuberance” is not dead. It’s just pouring recklessly into the wrong investment. We’ve seen trillions vanish from global markets in the past year. But where did it all this money go? It gushed into one solitary sub-prime investment. And it created the single biggest financial bubble in the history of Capitalism! Now it’s about to burst. When it does, millions will get a lot poorer, but a few are set to get very rich…

So what to do they do? They create more money to buy our own U.S. debt. It’s not like they’re even printing money. In 2009, they just have to do a little creative accounting and add some more zeroes to their bottom line.

On the Fed’s website, they clearly say they’re buying Treasuries “financed through the creation of additional bank reserves.” They’re not even quiet about it!

In other words, they’re creating more money. More dollars in circulation means every dollar in existence actually is worth less over the long haul.

If you want proof of that, the dollar has lost 53% of its value over the last 24 years...but more staggering is the fact that the dollar has lost 21% of its purchasing power in just the last nine years. It’s even worse compared to some other currencies and even gold.

This is flat-out ridiculous.

The whole point of selling U.S. Treasuries bonds is to pay off debt. Period. Instead, the Fed is creating more debt to make it LOOK like we’re selling Treasuries.

In other words, they’re creating a circle of debt.

And how they do it is even more ridiculous. Apart from the official sales that the Fed reports, the rumor is the Fed has been buying up Treasuries through primary dealers such as regular securities brokers and other Wall Street trader types. It’s convenient for the government to do that when they own several major banks.

These primary dealers go into the market and buy up Treasuries just like usual. Then the Fed buys them from the dealers a day or two later.

This way it doesn’t appear as if the Fed – a close inbred cousin to the government – is financing our own debt with new dollar supplies.

Pretty creative, huh?

It’s like an artist failing to sell her work at auction, so her husband goes in and buys it all. The result is the same: She didn’t really sell anything or make any money, but she gets the reputation of selling her art.

The result is the exact same for the U.S. – it looks like we’re selling debt. But in reality we’re just creating more.
How Your Dollars Are Involved in this Ponzi Scheme

Let’s talk about how your money plays into this ridiculous money creation-debt scheme for a moment. I’m sure I don’t need to tell you that the dollar just doesn’t buy what it used to.

Only nine years ago, the average loaf of white bread in the U.S. cost less than a buck -- $0.90. Today it’s $1.41. That’s a 57% increase.
That’s Your Dollar’s Real Value Soaring Lower and Lower

Imagine what you’ll do when bread continues to climb. When eggs, milk, gas, and everything else you need to survive is that much more expensive five, 10 years down the line. What happens if we don’t have true economic growth to support salary increases?
Don’t Wait for the Fed to Wake Up and Help You

Dollar creation affects us all. The Fed and the U.S. government playing catch with U.S. Treasuries to make it appear as if we’re paying off our debts just isn’t helping.

What does help this situation is taking action right now to shield yourself from this river of debt and of money mismanagement.

The only way to do that as an individual investor is to liberate a portion of your wealth away from the U.S. dollar. Invest in assets that are NOT denominated in U.S. dollars. That includes foreign stocks, foreign bonds, and yes, especially foreign currencies.

When I say “foreign currencies” I’m talking about stronger, better managed currencies including the euro, Aussie dollar, Canadian dollar, Swiss franc. Even lower-yielders like the British pound and Japanese yen could hold their value better than the U.S. dollar.

Also, you always look into forms of wealth that are NOT manipulated by the U.S. government and the meddling Fed. That includes gold, silver, other metals and commodities, even alternative assets like diamonds.

Again, you want rock-solid wealth that doesn’t depend on the Fed or the U.S. government pulling the strings or the books.

None of this Fed or U.S. government manipulation is going to stop any time soon. But that doesn’t mean you have to suffer along with it.

Take action now to protect yourself.

Good Currency Trading,
Kat Von Rohr, Editor of
FX University

P.S. All this nonsense about the Fed buying Treasuries is also creating the next great market bubble. You can read all about it in Chuck Butler’s latest special report.

“America’s Last Great Bubble Is About to Explode”

“Irrational exuberance” is not dead. It’s just pouring recklessly into the wrong investment. We’ve seen trillions vanish from global markets in the past year. But where did it all this money go? It gushed into one solitary sub-prime investment. And it created the single biggest financial bubble in the history of Capitalism! Now it’s about to burst. When it does, millions will get a lot poorer, but a few are set to get very rich…

So what to do they do? They create more money to buy our own U.S. debt. It’s not like they’re even printing money. In 2009, they just have to do a little creative accounting and add some more zeroes to their bottom line.

On the Fed’s website, they clearly say they’re buying Treasuries “financed through the creation of additional bank reserves.” They’re not even quiet about it!

In other words, they’re creating more money. More dollars in circulation means every dollar in existence actually is worth less over the long haul.

If you want proof of that, the dollar has lost 53% of its value over the last 24 years...but more staggering is the fact that the dollar has lost 21% of its purchasing power in just the last nine years. It’s even worse compared to some other currencies and even gold.

This is flat-out ridiculous.

The whole point of selling U.S. Treasuries bonds is to pay off debt. Period. Instead, the Fed is creating more debt to make it LOOK like we’re selling Treasuries.

In other words, they’re creating a circle of debt.

And how they do it is even more ridiculous. Apart from the official sales that the Fed reports, the rumor is the Fed has been buying up Treasuries through primary dealers such as regular securities brokers and other Wall Street trader types. It’s convenient for the government to do that when they own several major banks.

These primary dealers go into the market and buy up Treasuries just like usual. Then the Fed buys them from the dealers a day or two later.

This way it doesn’t appear as if the Fed – a close inbred cousin to the government – is financing our own debt with new dollar supplies.

Pretty creative, huh?

It’s like an artist failing to sell her work at auction, so her husband goes in and buys it all. The result is the same: She didn’t really sell anything or make any money, but she gets the reputation of selling her art.

The result is the exact same for the U.S. – it looks like we’re selling debt. But in reality we’re just creating more.
How Your Dollars Are Involved in this Ponzi Scheme

Let’s talk about how your money plays into this ridiculous money creation-debt scheme for a moment. I’m sure I don’t need to tell you that the dollar just doesn’t buy what it used to.

Only nine years ago, the average loaf of white bread in the U.S. cost less than a buck -- $0.90. Today it’s $1.41. That’s a 57% increase.
That’s Your Dollar’s Real Value Soaring Lower and Lower

Imagine what you’ll do when bread continues to climb. When eggs, milk, gas, and everything else you need to survive is that much more expensive five, 10 years down the line. What happens if we don’t have true economic growth to support salary increases?
Don’t Wait for the Fed to Wake Up and Help You

Dollar creation affects us all. The Fed and the U.S. government playing catch with U.S. Treasuries to make it appear as if we’re paying off our debts just isn’t helping.

What does help this situation is taking action right now to shield yourself from this river of debt and of money mismanagement.

The only way to do that as an individual investor is to liberate a portion of your wealth away from the U.S. dollar. Invest in assets that are NOT denominated in U.S. dollars. That includes foreign stocks, foreign bonds, and yes, especially foreign currencies.

When I say “foreign currencies” I’m talking about stronger, better managed currencies including the euro, Aussie dollar, Canadian dollar, Swiss franc. Even lower-yielders like the British pound and Japanese yen could hold their value better than the U.S. dollar.

Also, you always look into forms of wealth that are NOT manipulated by the U.S. government and the meddling Fed. That includes gold, silver, other metals and commodities, even alternative assets like diamonds.

Again, you want rock-solid wealth that doesn’t depend on the Fed or the U.S. government pulling the strings or the books.

None of this Fed or U.S. government manipulation is going to stop any time soon. But that doesn’t mean you have to suffer along with it.

Take action now to protect yourself.

Good Currency Trading,
Kat Von Rohr, Editor of
FX University

P.S. All this nonsense about the Fed buying Treasuries is also creating the next great market bubble. You can read all about it in Chuck Butler’s latest special report.