Monday, November 10, 2008

Going Numb

It's interesting how people hear the news now and just calmly churn through the daily headlines. For example, crossing the wires today (Monday) we saw:

-Circuit City declares bankruptcy
-AIG now needs $150 billion to stay solvent
-Fannie Mae says will need more than $100 Billion to stay solvent
-GM needs $25 Billion to stay solvent
-American Express becomes commercial bank so Fed can just give it free money

The Federal Reserve grew its balance sheet by $185 billion LAST WEEK, and has now crossed over $2 Trillion. The head of the Dallas Federal Reserve said last week that they will cross over $3 Trillion by the end of the year. Here's a look at what that growth looks like:



This weekend China decided to join the party in stimulating their economy. They are preparing a $550 billion stimulus program. I guess they are in a similar situation as us, right?

No, it's almost exactly opposite. China has $550 billion SAVED. They run a massive trade surplus every year that mostly comes from the USA. Our $4 Trillion stimulus comes from printing money and borrowing from foreigners. We take that money and throw it away on banks, auto manufacturers, credit card companies and Fannie Mae to stay solvent.

China is using the money to invest more in their countries infrastructure. They will invest in new factories and tax cuts for business growth. Can you see the difference between the two? It is very important that you can. Do not let the daily headlines numb you. The trillions of dollars that are being printed will be accounted for. The trillions of dollars that are being borrowed will be accounted for.

Who will do this accounting? Gold will. And more specifically the dollar will. Probably not tomorrow, and maybe not this year. Every day that passes means the correction will be bigger when it comes.

Looking at a major news website yesterday, I saw 20 to 30 articles discussing the topics above, mostly focusing on the news that GM will be downgraded and may file for bankruptcy. In a small side bar, completely ignored, I saw the headline:

"US debt grows exponentially and the country may file for bankruptcy."

I thought that was funny.

Warren Buffet, the richest man in the world and the greatest investor of all time, has recently moved 100% out of his wealth out of US treasury bonds. 100%. He understands what is coming.

Bill Gross, who manages the largest bond fund in the world and is considered the greatest bond trader of all time, has recently announced he is moving substantial holdings away from US treasury bonds. He understands what is coming.

Commercial banks are taking massive short positions right now on the US dollar. They know what's coming.

The super rich around the world are making massive purchases of physical gold and silver. They understand what is coming.

The Federal Reserve stands ready to print money with NO LIMIT, and while everyone is talking about bailing out GM, no one talks about who is going to bail out the US.

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