Good evening everyone!
What an epic day on Wall St. I must admit that I also find it to be a very sad day based on some news from the Treasury. I think I may have to tweak my thesis on the economy my friends. Watch the following video, and I will explain what scared the daylights out of me today.
Wow me might as well call this guy Nostradamus based on his recommendation to buy gold. I have been in the deflation camp throughout this crisis. I thought the gold bugs had it wrong because I thought the Fed would shrink the money supply, and we would work through this via a Japan like deflationary scenario.
I thought surely the government would understand that trying to hyperinflate out of this would be insane. I say this because they would risk destroying themselves in the process because governments are ALWAYS overthrown when the hyperinflationary route is taken. Go Google Argentina and Germany hyperinflation and see how it worked out for those two governments. (I'll give you a little hint: Germany ended up with Hitler in power).
Now why am I now worried that we might try to inflate out of this? The Treasury announced today its going to turn on the printing press because the Fed is broke:
"Sept. 17 (Bloomberg) -- The Treasury will sell more debt to enable the Federal Reserve to expand its balance sheet, a sign of the strains created by the biggest extension of central-bank credit to financial companies since the Great Depression.
The program starts today with a $40 billion auction of 35- day bills, a day after the government agreed to take over American International Group Inc., the Treasury said in a statement in Washington.
The proceeds will ``provide cash for use'' by the Fed as it seeks to boost liquidity in credit markets struggling from $515 billion in writedowns and losses since the start of last year. The announcement illustrates the potential drain on the government's finances in taking over AIG, Fannie Mae and Freddie Mac, and taking on $29 billion in Bear Stearns Cos. assets.
``It is becoming imperative for the Fed to take actions to enlarge its balance sheet,'' said Tony Crescenzi, chief bond market strategist at Miller Tabak & Co. in New York.
Yesterday the Fed announced an $85 billion loan to AIG, in exchange for a 79.9 percent government stake in the largest U.S. insurer. The Fed also has set up several other emergency lending programs to provide Wall Street firms with ready access to funding.
``The program will consist of a series of Treasury bills, apart from Treasury's current borrowing program'' and ``will provide cash for use in the Fed initiatives,'' the department's statement said."
I was speechless after I read this. I have always wondered where the government thought they were going to get the money to pay for all of these stupid bailouts. Now I know: The Printing Press!
Folks, the more dollars you add to the money supply, the less the dollar is worth. If we start printing money, the hyperinflation scenario has to be part of your investment thesis. This is why gold had its biggest one day move in history. Are you guys ready for $30 bread? This is what happens when countries try to print out of financial catastrophes.
That $500,000 nest egg you saved for your retirement all your life becomes almost worthless. Of course after this happens, the citizens revolt and the government gets overthrown. Folks, the government has been overthrown every time this happens. Every time!
I gave you examples of foreigners backing away from our debt yesterday. Today the printing press was turned on to make treasuries for sale because the Fed is broke. As we fall into a severe recession and the government keeps spending like a drunken sailor, foreigners are going to start bailing on the great USA and our debt.
Think about it:
What incentive will they have to buy treasuries if we continue to spend spend spend which eventually kill our dollar? Turning on the printing presses will only exacerbate the fall of the dollar which makes treasuries even less attractive.
To make things worse, we are no longer consuming like we used to. This was a big reason why China keeps buying our debt in the first place! They knew we would take the money and buy import billions of dollars worth of Chinese goods.
We are becoming a less attractive place to invest. This will make printing out of this via hyperinflation a much more attractive option for the government.
So what should you do as an investor? Buy some gold. I will be picking some up this week and I will buy more if I see more printing by the government. We need to put a stop to this. Call your Congressman and tell them to stop spending money we don't have. We cannot allow hyperinflation to occur. Its the worst case scenario folks!
Guns and Gold. This is what it is coming to if we don't clean up our act.