Treasury Bonds Ponzi Scheme Ready To Explode, Experts: Time To Buy Gold And Silver Protection

This will be accompanied by a burst of the Bond Bubble. This Ponzi scheme is getting prepared to explode. Experts recommend buying gold and silver to protect your wealth from evaporation due to inflation and devaluation of the dollar.
By: Franklin P. Whitman
 
NEW YORK - March 14, 2013 - PRLog -- It is analyst's contention that the 70-year debt super cycle has come to a finish. To put the current monetary situation in perspective, here's a long-term history of the debt-to-GDP ratio, which reached a record high in the beginning of the current crisis. It was a dramatic change in 2009, unlike anything at all since the aftermath of the Great Depression. How high will silver go? Learn more >>  http://www.gold-and-silver-market.com/KITCO-SILVER/

The highest the debt-to-GDP ratio had previously been for the United States was 301% in the bottom of the depression in 1933 when GDP collapsed and debt was high. The level became unsustainable in 2009, regardless of low interest rates. Weak borrowers had been signing as much as finance houses that they thought would increase in price forever. The point of this is that this downturn is different from all the recessions since World War II.

Total market debt consists of debt of the federal government, state governments, households, business, monetary institutions, and to foreigners. The elements of the above total debt are shown below, so you can see which ones are stabilizing and which might be approaching unsustainable levels.

Searching forward, the most important issue is that the federal government has inserted itself into the economy with massive deficits to attempt to combat the slowing of the private sector. As you can see, private-sector borrowing has not increased; even as federal government deficits have ballooned to unprecedented levels. In essence, we're building our recovery on government debt.

The clear driver of this extreme expansion of government debt that experts call a "Bond Bubble" will be the Federal Reserve's flooding of markets with liquidity to drive rates to zero. The chart beneath shows a projection what will occur to the Fed's balance sheet as it continues to distort the rate to zero by extending its monthly purchases of $40 billion of mortgage-backed securities (MBS) and $45 billion of Treasuries out to 2016:

It is specialists contention that the actions of the Fed, which were started to counter the credit crisis of 2008 with four programs of quantitative easing, have brought us the extremely low interest rates (aka, the Bond Bubble) we have today. By purchasing so many credit assets, the Fed is driving the price of bonds higher, and therefore interest rates a lot lower, than they would otherwise be. What do the experts have to say about gold and silver? Learn more >> http://www.gold-and-silver-market.com

The growth in Fed purchases will likely continue so that the low rates of the Bond Bubble do not collapse. However the effects of the Fed's economic stimulus decline with each new injection of cash.

There will come a time when the Fed announces a brand new plan of balance sheet expansion by asset purchases which will cause the interest rate to rise because of fears of inflation from cash creation, rather than fall as the Fed desires. At that point, we'll know the Fed's power to manipulate the economy has dissipated.

The present level of 2% is lower than it has ever been, except to get a short low of 1.5% last fall. It's the lowest in 240 years. This really is happening in spite of government deficits expanding at a trillion dollars per year as far because the eye can see. We are in the bottom of a 32-year bull marketplace in bonds (drop in price). The point is the fact that these very low rates are unprecedented, even when looking back to the last Great Depression. They could spring back a long way.

During the credit crisis, junk bonds had been the worst performers, as investors feared they would shed their money in default. Rates rose on BBB corporate debt as well. In the exact same time, government debt became the safe haven, and as people moved to the safe haven, they drove the price of Treasuries up and their interest price down. The premium has gone out of the lower-rated markets, with rates even lower than before this crisis started. It is not that risk has disappeared: experts think it is more likely that the flood of excess money is chasing any kind of return it could discover, and that is driving rates to record-low levels.

The forces of inflation can easily overcome a weak economy to destroy a currency: this has occurred in nations like Zimbabwe, Argentina or Yugoslavia. Once issues get out of hand, it is hard to say whether or not it is the weak economy that causes the government spending and further deficit destruction of the currency, or the reverse. But that does not matter once people lose self-confidence in the government and its paper issuance.

But even using these conservative government numbers, when we subtract the inflation from the interest price to show the real return to an investor, we get negative numbers. This, too, is unsustainable.

We have written extensively in previous articles about central bank expansion, but it's worth reminding ourselves that excessive cash creation isn't just a US phenomenon but a worldwide experiment. Once this feeds back on itself as ordinary people recognize the destruction of the fiat currency systems, we are able to expect inflation on a worldwide basis. The comparable decline in interest rates in Germany and Japan will be the outcome of their central bank interventions to support their economies by driving rates lower.

In contrast, the stronger nations have been able to accommodate their government debt increase and nonetheless maintain moderate interest rates. The United States of America is shown in the following chart. Central banks have aided the government in managing to help keep rates low despite big deficits, by purchasing the debt. Balance sheets of the world's central banks are growing rapidly to support government deficits while forcing rates to low levels. It's a bubble.

When you purchase Treasury bonds, you're placing your fate in the hands of the government, expecting it to give back your purchasing power and a reasonable amount of interest to you, in return for the use of your cash. Should you trust these authorities with your money? Experts believe we're headed for a serious loss of confidence in the value of the dollar, which will be accompanied by a burst of the Bond Bubble. This Ponzi scheme is getting prepared to explode. Experts recommend buying gold and silver to protect your wealth from evaporation due to inflation and devaluation of the dollar. How high will silver go? Learn more >>  http://gold-and-silver-market.com/KITCO-SILVER/
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Source:Franklin P. Whitman
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