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U.S. Will Default on Its Debt

Interest-Rates / US Debt Apr 04, 2011 - 11:13 AM GMT

By: DailyWealth

Interest-Rates

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 investing,

Steve
P.S. To read Bill's full letter about why the U.S. will default, click here.

http://www.dailywealth.com

The DailyWealth Investment Philosophy: In a nutshell, my investment philosophy is this: Buy things of extraordinary value at a time when nobody else wants them. Then sell when people are willing to pay any price. You see, at DailyWealth, we believe most investors take way too much risk. Our mission is to show you how to avoid risky investments, and how to avoid what the average investor is doing. I believe that you can make a lot of money – and do it safely – by simply doing the opposite of what is most popular.

Customer Service: 1-888-261-2693 – Copyright 2011 Stansberry & Associates Investment Research. All Rights Reserved. Protected by copyright laws of the United States and international treaties. This e-letter may only be used pursuant to the subscription agreement and any reproduction, copying, or redistribution (electronic or otherwise, including on the world wide web), in whole or in part, is strictly prohibited without the express written permission of Stansberry & Associates Investment Research, LLC. 1217 Saint Paul Street, Baltimore MD 21202

Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.

Daily Wealth Archive

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Comments

Rick
04 Apr 11, 19:08
Outright U.S. Debt Default:No Gold Confiscation: Yes

The U.S. dollar will devalue; no one is disputing that. Yes, interest rates are low, but no one can predict how long they will remain so.

There is certainly no shortage of pundits (and other prophets of doom) who put a lot of spin on the U.S. debt problems. Yes, Social Security, Medicare and other government entitlement programs will need to be reigned in, and they shall.

On a side note, the American public held gold, silver and high yielding gold certificates (Liberty Bonds) during the thirties, but they were sliced, diced and quartered during Roosevelt's reign of terror (1933 Gold Confiscation Act).

Just as surely as the present administration will spare no expense in confiscating all of the nation's retirement plans, those who hold precious metals will not be spared a similar fate. Take heed, the Obama juggernaut is fast approaching.


Paul_B
05 Apr 11, 14:37
Gold Confiscation Not Feasible

It's not going to happen. Even if it did happen it would never be complied with. Even if it were complied with it would never make nearly enough difference to the US's shocking balance sheet.

The Fed have vigorously resisted an audit of US gold bullion holdings. Why? What harm could that possibly do? Obviously it can only be because some or all of the gold has, er, "vanished". If you think the American public are going to hand over *another* stack of gold to the Fed, when they can't even account for what became of the last lot, AND IN THE INTERNET AGE AND ALL, then good luck with that. You'll need it.


peter
05 Apr 11, 15:09
gold confiscation again

think those in power will certainly be talking and thinking and scheming about it but will they be able to pull it off a second time? And this time with the internet and availablility of information real time it's going to be a much tougher sell. It may spark a revolution this time especially as Paul_B pointed out, Fort Knox is probably empty or maybe it's just full of gold plated Tungsten bars.

And if Fort Knox is really full of gold then why would they have to confiscate more gold if they already have 8000 tons?


Rick
05 Apr 11, 22:37
Gold & Silver Confiscation: No Fooling!

Ever since FDR's abrupt seizure of all private holdings of gold and silver in 1933, most Americans have shunned such commodities in their portfolio baskets. The confiscation that occured back then is not much different from plain homesteading in today's times. One does not 'own' the land per se, but rather just 'squats' on it. Similarly, one pays for the privelege of 'holding' gold, but not necessarily 'owning' the metal.

Make no mistake. If push comes to shove, nothing will be left off the table. The federal government has all the power that it needs to seize anything at will (whether it be land, stock purchases, commodities, personal property, savings and retirement accounts, etc.).

Do you think that FDR was fooling when he issued that confiscation order to the American public? Do you think that Barack Obama will be fooling when he issues a similar directive? I can assure you that FDR had absolutely no trouble at all in securing universal compliance with his order, and neither will Barack Obama. Do you know why? Please read Section 9 of the Gold Confiscation Act of 1933 below, and then you will have your answer.

Section 9. Whoever willfully violates any provision of this Executive Order or these regulation or of any rule, regulation or license issued there under may be fined not more than $10,000, or,if a natural person may be imprisoned for not more than ten years or both; and any officer, director, or agent of any corporation who knowingly participates in any such violation may be punished by a like fine, imprisonment, or both. in their portfolios.


Paul_B
06 Apr 11, 17:47
Gold Won't Be Confiscated.

Rick,

All people would have to do would be to stash their gold someplace safe. That's all. If the government can't find it, they can't seize it and they cannot punish you if you don't appear to possess any!

I wish the gold bugs well. They had more foresight than me, but I don't begrudge them the huge gains they've made. They took a risk and it paid off big time. Gotta salute that!


Onc' Scrooge
07 Apr 11, 02:05
Again and again GOLD CONFISCATION

Hi,

Again these rumors about gold confiscation, you guys are heavily marked by the so called confiscation of 1933

but the historical facts of 1933 are other as you think:

Gold confiscation of 1933 is more a myth than a reality.

The White House has stated the 5 April 1933 that

".. over $600.000.000 in the form of gold and gold certificates" had been returned to the FED banks.

What does this mean ?

In 1933 there were gold certificates (legal banknotes with a promise of redeemption in gold coin with the text "IN GOLD COIN PAYABLE TO THE BEARER ON DEMAND') in circulation for the total amount of: $3.385.640.000 !!!

in $10, $20 and $50-Notes for $1.963.640.000

in $100-Notes for $324.000.000

in $500, $1.000, $5.000 and $10.000-notes for : $1.098.000.000 !!!!

The notes greater > $100 were automatically out of circulation by the confiscation act because 5 Oz of gold (to keep legally by any person) was only about $103,35 ($20 gold coin has .9707 Oz fine gold).

But there had been for $1.1 bn of these high value notes in circulation !!

BUT ONLY $0.6 bn IN ANY FORM (Gold Certificates, BULLION) WAS RETURNED !!!

The bulk of the returned $0.6 bn in gold had been high value gold certificates and NOT GOLD COINS OR BULLION!!

Because nobody would be able to use these notes after 1. of May 1933 these gold certificate notes were legally changed before the 1. of May into National Currency (FED notes).

People changed a bank note against another - loosing only the theoretical right of redeemption in gold !!

Another myth is that the (supposed) content of Fort Knox (some 8100 metric tons of gold - around 260.000.000 Oz) is coming from the confiscation of private gold holdings in 1933.

In reality only about 500 metric tons (16.000.000 Oz) where "confiscated" from the public in 1933 see http://en.wikipedia.org/wiki/Executive_Order_6102

We must see this in relation to the amount of gold in circulation. In the US up to 1930 gold coins for an amount of $4.800.000.000 have been minted (230.000.000 Oz) only 6% of them entered Fort Knox by being exchanged against FED-Notes in order to the Confiscation Act of 1933!

Where does the Fort Knox gold really come from ?

1. 1933 most of the gold certificates (legal bank notes) where exchanged into Fed-Notes - 1934 private possession of gold certificates was forbidden and those in possession of the banks where changed into not redeemable gold certifcate notes (issue of 1934).

The old gold certificate notes were backed at 100% by the local FED's with gold which was stored in their vaults.

This gold now obsolete for backing gold certificates went to Fort Knox.

We don't know how much gold certificates were in circulation but it must have been at least the sum of the so-called "small-size" notes of 1928.

The former "large-size" notes (issues 1882-1922) were also in circulation but in parts replaced by the 1928 issue.

The 1928 issue was about $3.385.640.000 alone - this means for backing this amount at least some 168.000.000 Oz of gold had been stored in the local FEDs.

After the Gold Reserve Act of 1934 all gold of the FED's was transferred to the Department of Treasury.

2. After the Gold Reserve Act of 1934 all gold mine companies had to sell their mined gold to the gouvernment - that the second big source of the Fort Knox gold.

As we see the 1933 confiscation was in reality a "confiscation" of the right of redeemption of bank notes and only in a very little part a "confiscation" (by exchange into Fed-Notes) of real physical bullion!

More than 90% of the physical Bullion was not "confiscated"!

There was only 1 prosecution under the Confiscation Act and this one was declared technically invalid by the judge.

Safe deposit boxes held by individuals were not forcibly searched or seized under the order, and the few prosecutions that occurred in the 1930s for gold hoarding were executed under different statutes. see

http://en.wikipedia.org/wiki/Executive_Order_6102

Cheers


peter
07 Apr 11, 13:02
gold confiscation

Gold confiscation is not a myth. It did happen and since there is a precident for it, it could happen again. Anyone with more than 5oz of gold needs to think about that. Will it happen? If the entire fiat currency system collapses, which is a possiblity, then gold will be in high demand and governments will do what they need to do to get hold of it. It still doesn't mean there will be another round of gold confiscation but I think the prudent investor will at least plan for the possibility. Tread carefully, these are dark times and the storm is approaching.


Onc' Scrooge
08 Apr 11, 01:28
1933 Gold Confiscation

Hi,

Peter, I never said that there had been no gold confiscation in 1933 and I never said that there won't be any in the future.

What I say is that the way todays people talk about it is not the historical truth.

Mythical horror stories about 1933 is the problem I try fight.

Again the thruth is:

- about 168.000.000 Oz PAPER GOLD was confiscated in 1933 and redeemed in fiat (FED notes)

- only some 16.000.000 Oz of real physical gold bullion was changed against fiat and the owners of this bullion had been in great majority institutional - there was very little privatly owned gold bullion given away.

- nobody was fined or jailed in this story

- deposit boxes have not been blocked for the owner

- FBI never investigated in homes and deposit boxes in order to find some double eagles

- more than 214.000.000 Oz of physical gold (minted coins and ingots) has been hidden by your grandfathers until 1971

- nearly everybody having more then 5 Oz of physical bullion did not respect the law

What this story is telling us in case of a new confiscation:

- not to have "paper gold" in the borders

- gouvernement will probably not investigate in your home

- gouvernement will not jail millions of people in order to have a revolution

- do what your grandfathers did

Cheers


Paul_B
08 Apr 11, 05:41
We will never get to the stage of gold confiscation

Given the mass awareness now (thanks to the internet) of how savers and investors have been screwed by governments the world over for decade after decade, I believe we would see, on the path to any "confiscation" and well before it ever came to pass, politicians and bankers hanging by piano wire in their thousands from telegraph poles in all western countries. One more major black swann event and it's game over for the enslavers.


peter
08 Apr 11, 14:41
gold confiscation

It's not just gold but silver to watch out for. As said above, do what your grandfathers did and don't let go of your gold and silver no matter what the government tells you to do.

On a side note, if confiscation were ever to happen again you would probably (but not necessarily) see the mint stop producting gold,silver eagles in the months before such an event would happen. That would be a possible sign that they were preparing for confiscation again. In the 30's there was basically no gold coinage minted after 1929 although there was some in very very limited quantities with 1933 being the very last year of which only a handful of coins were produced.


Rick
08 Apr 11, 19:55
Gold & Silver Confiscation: The Juggernaut Cometh!

Peter: In fact, not only were all of the nation's safety deposit boxes locked down (before the ink could even begin to dry on FDR's gold confiscation directive), our grandfathers did do exactly like FDR commanded. One has to look no further than through the records at that time to discover that most of the gold (and silver) which was confiscated originated from the general public.

As history reveals, it was hardly necessary for FDR to ever raise a finger to meet his objective, and I would have to doubt that this president wasn't prepared to use all means at his disposal to achieve that end. Moreover, one would have to believe that the penalty for non compliance with that order was simply something no one dared risk at that time. Tell me. What would all of you learned gentlemen have really done in 1933? Would all of you been willing to forfeit the family jewels, and share a cell in Atlanta (next door to Capone's) for daring to violate FDR's order? I think not.

Now as for the remainder of the nation's gold (which was held primarily by the nation's major banks), this was quietly routed to select Swiss vaults and other clandestine offshore depositories (and presumably out of the U.S. government's reach).

The big players (Rothchilds, Morgans, Rockefellers et al) in this game write the rules Peter, but they don't necessarily have to abide by them. They will if it is convenient for them to do so. A pleasant journey!


Paul_B
09 Apr 11, 04:19
Gold Confiscation a Myth

Rick,

Onc' Scrooge has gone to extensive lengths to try to inform you of the facts. He has provided facts and figures and sources and attributions for every claim he has made.

You are coming across like a classic anti gold bug. You're bitter about missing out on gold's meteoric rise and you just want to spoil the party for those that were smarter than you and bought gold years ago. .

If any FED agents were unwise enough to seek to seize gold in the internet age, they will encounter only lead for their trouble. No one would comply, especially given that US gold reserves have been blocked from an independent audit. It simply ain't gonna happen, pal.


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