By David Fischer
Sr. Broker, SATC, co-host Gold News Daily
Jun 29, 2009
Warren Buffett was in the news last week saying that the US may need a second stimulus package. Three weeks ago you heard me say that Warren believes inflation this time around has the potential to be much more severe.
According to the Washington Post, the financial crisis that started in the United States is dramatically intensifying the debate over the future of the dollar. Central Banks are questioning whether it can, or should, remain at the top of the financial food chain. Although a meaningful shift away from the dollar is likely to take years, some analysts believe that the decision has already been made and the scales have tipped the other direction.
Last week, the leaders of Brazil, Russia, India and China -- whose governments are some of the world's largest dollar holders -- jointly declared the need for a "more diversified international monetary system," sparking a huge drop in the greenback on world markets.
In recent months, China in particular has led a campaign for a new world monetary order, arguing that the financial crisis has exposed profound vulnerabilities in the U.S. economy and put a crack in the U.S. financial system. Those flaws, critics argue, show it is simply too risky for the world's central banks to rely largely on the dollar for their global reserves.
Would you solely rely on a currency when it's government can't balance their checkbook? If not, I recommend reading "Six Steps of Wealth Preservation". SafeMoney.com founder Martin Weiss says, "The dollar's global status has allowed the U.S. to have a free pass on financing our deficit."
Let's connect the dots: The Fed prints money at the speed of light. President Obama spends money at the speed of sound. And Americans pay trillions for it all over multiple generations! Yet Warren Buffett says much more stimulus is needed! You cannot stop this train wreck, but you can hop off the train! The imperative question is; Are you ready for inflation?
We cannot avoid inflation. It is a foregone conclusion. The imperative question is are you ready for inflation?
Bloomberg reports, "US household wealth fell in the first quarter by $1.3 trillion, extending the biggest slump on record, as home and stock prices dropped." Yikes! In just the first three months of the year!
Obama is pushing his health care bill which some estimate will cost $1.2 trillion. He is doing this while the economy contracted at a 5.7% annual pace in the first quarter and consumer spending rose at a 1.5%.
Robert Reich, Labor Secretary under Clinton said, "Everything that the White House does concerning this deep recession contains an element of gambling because no one has been here before."
The road to destruction has been paved with debt; borrowing by consumers, businesses and government agencies which increased at an annual rate of 4.1% last quarter compared with a 6.2% gain the prior quarter. The gain was paced by a 23% surge in borrowing by the federal government, linked to the stimulus plan. This doesn't even count borrowing by state and local governments, which increased at a 4.9%.
How about repayment? At least three banks so far could not make their TARP payments to the government. Bill Bonner at The Daily Reckoning notes, "Some habits are hard to break. The habit of getting something for nothing is one of them."
Bill Gross says "The official US debt is exploding. It will be 100% of US GDP within 5 years."
What is the spending habit of the government? If you think the problem is just going to go away let's get real. You can't fight the government but you can fight for your money.
Lets look at some numbers: $14 trillion (GDP), $11.3 trillion (current national debt), and $3 trillion (MORE national debt will accrue this year alone). You cannot spend your way into oblivion without huge ramifications being inflationary.
Your destiny is determined by one small step at a time.
The news echoed around the world Thursday that Michael Jackson, know as the "King of Pop", died suddenly of a heart attack. His music has been thrilling for many, which brings us to the markets. Many of us want thrilling markets yet the economic environment is to say the least, short of that.
Bloomberg news reports today that Executives at U.S. companies are taking advantage of the biggest stock market rally in 71 years to sell. That's right, sell their shares at the fastest pace since credit markets started to seize up two years ago.
Stock sales by CEOs, directors and senior officers have accelerated to the highest level since June 2007. The increase is making investors more skittish because executives presumably have the best information about their companies' prospects.
Joseph Keating, the chief investment officer of Raleigh, North Carolina-based RBC said, "If insiders are selling into the rally, that shows they don't expect their business to be able to support current stock- price levels."
Is this your wake up call?
Recently China and Corporate America have been stepping into gold. This trend, which is escalating, will move to a massive level. Why not you?
I know my market in gold is boring. But boring is good. Many people want the thrill; they want to be the rabbit in the race. Gold is the tortoise, slow, boring, but safe, consistent and reliable.
Has your portfolio grown 20% plus year after year for 8 years now? Gold has. China and many others believe inflation is coming and when it does then the gold market will be quite thrilling but until then boring is good and safe.
Until next time, this is David Fischer with Gold News Daily. [Ed. Note: Gold News Daily airs live daily at 3:30pm on KFNN, 1510 AM in Phoenix, AZ]
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