Treasury pledges unlimited bailouts for Fannie and Freddie


Zero Hedge: Stocks would be flat without after-hours goosing


Zero Corner, Debt Costs & Isolation


Why Gold and Silver Will Be the Next Currency


James Turk: Government overspending causes hyperinflation
http://www.fgmr.com/december-23-2009-what-causes-hyperinflation.html



Special thanks to Mike Hoy, for reposting this for everyone.

I wrote this article five years ago in an attempt to help investors reach out to family members in an effort to help them survive the unfolding economic events of the future. Several subscribers have asked me to re-submit the article for public posting a second time as the message contained within the article is as important today as it was then.
I have not updated the content as I want to refresh investor’s memories of the economic events leading up to the writing of this article. These events were directly responsible for the financial collapse in 2008. I plan to write a follow-up to this article as the unfolding events of today represent risks that I believe will challenge the very foundation of life as we know it in the years ahead.
Merry Christmas, Seasons Greetings and a Happy New Year to all,
Mike,
A WAKE-UP CALL
12-22-04:
This is a special article that I am writing for the Holiday Season. I have had several requests to write an article to help educate and awaken our loved ones to the reality of the future. If I am successful in bringing to words, the thoughts that rattle around in my head, then I hope this article will make the Holiday Season a little less argumentative and a lot more friendly than many prior Holiday’s experienced by some families, including my own. Arguments and tensions tend to rise when the subjects of the economy, world uncertainties and the markets come up for conversation.
This is an article that all of you can e-mail or share directly with those you really want to help but have never had the chance to quiet, long enough, for them to hear and understand why you think and feel the way you do. You and I both know that reaching these people has been very difficult, if not impossible. As in the past, you are probably wasting your time but you are going to give it another shot simply because you do care about them and know that one day they will awaken to the future. You can only hope they will wake-up before it is too late. These “less than totally informed people” have an opportunity to invest in an industry that is in the infant stages of what could be the greatest bull market in history. If just a fraction of this bull market materializes, investors in these markets have the opportunity to change the financial futures of themselves and their families forever.
To understand the risks associated with the coming events of the future, one does not have to be a rocket scientist. All one really needs to do is spend a little time reading the numerous articles that are posted on the websites you and I read every day.
Most of you, like me, have paid a heavy price for trying to help your family and friends. You have been labeled as negative, un-American, off your rockers and simply not in touch with the rest of the world. Well, the fact of the matter is, you are none of the above. It’s time they realize they are the one’s out of touch with reality. If they do not wake up soon, they will find that one day, all their hard work and labor has been for nothing as it could evaporate overnight. If they don’t wake up they will also miss the greatest investment opportunity of a lifetime.
THEM
Now I am going to talk to “them;” the third party, the people this article is being written for.
I do not plan to sugarcoat what I have to say because I know that very few of you will even read this article from start to finish and many of those who do, still won’t get it. If I try to write everything that I feel and want you to think about, this will be a long article and that is counter-productive. So I hope to keep it shorter, than I should, and still stir you to begin to question and seek knowledge of what the true facts are and the long lasting effects they will have on your life.
I am going to enjoy writing this article because this is the one time that none of you can interrupt me with the never ending phrase of “you are always so negative and quite frankly I am tired of listening to it” as a response to not listening and learning. Instead maybe you will read and begin to comprehend the risks you face with being in the dark. You know that if you ever do listen and begin to understand that the changes you would be forced to make in your own lives would be totally against everything that you want to believe. Do you think for one minute that we do not want to believe and have faith in the same things that you believe? Do you know how many times we have said to ourselves that “I wish I didn’t know now all the things I didn’t know then?”
For most of you, it is so much easier to believe that the people leading this country really have your best interest at heart and that one day you will wake up and everything will be just fine. Well, I’ve got some real bad news for you; that is never going to happen under the current paths and policies that our country is now pursuing. One day you will wake up and realize that the only interest they have is to gain or keep political power. This is accomplished by trying to give everyone what they want without having to pay for it.
Most of you don’t realize that we have no choice in the way we think. We never wanted to be labeled as un-American and negative. We never wanted to get family upset at holiday gatherings. Believe it or not we really do love you people and when family gatherings turned into nightmares we are the ones who suffer the most.
We realize that the real arguments happen as a result of blind loyalty and stubbornness on your part to believe what you are being led to believe by those you trust. What you fail to realize is the fact that your blind loyalties are terribly misplaced. We would truly love to believe the way you do but unfortunately we have taken the time and made the effort to not give our loyalties blindly. We have spent hours upon hours doing research in search of the truth. This research continually feeds upon itself because the more research we carry out the more we realized the depth of our country’s and the world’s problems. We know for fact that things are absolutely not the way we have been led to believe.
Remember when you got your teeth kicked in as the tech stock bubble burst? Do you remember how you were so sure that things were different this time and that people like Warren Buffett, during the tech bubble, were labeled as “has beens?” Do you remember how you bought into the game of “old economy” versus the “new economy?”
The reality of that period of investing came down to the fact that there was absolutely no justification to support the lofty “.com” market caps. As a result, analysts created a totally separate category called “new economy” in a successful bid to move these exorbitant market caps even higher. It was a fantastic game until the end came. When that happened they recreated another category called “bagholder!
Even today I am beginning to hear the words “new economy” again. What do you think this should be telling you about traditional stock and bond market investments? Do you think they could be approaching the overvalued levels again? Of course you can always invest using the “greater fool theory.” This just means that there may be a bigger fool, than you, to buy your stock from you at higher prices.
How do all you ex-owners of Kmart and Enron stock feel seeing how you received nothing for your bankrupt company while those who wound up with your assets are reaping the rewards of your failed investments? Do you really want to be involved in a market that runs over you like this?
How do all you investors feel when Elliott Spitzer finds wrong doing in corporations and then settles with the criminals, collects a ton of money for “his” cause and you receive nothing. Then to add insult to injury, he allows the guilty parties to walk away absolutely free without admitting or denying any guilt. What an insult; Spitzer gets his and the guilty parties settle for a paltry fine, which you shareholders pay for, and no one is held accountable, except Martha Stewart, and I have yet to figure out what she did wrong.
Enron collapsed as a result of derivatives and offshore corporations. Our elected officials swore they would get to the bottom of that mess and make changes that could keep it from ever occurring again. So what happened? How come the politicians and Spitzer have not forced other corporations to unwind their financially destructive derivative positions and close their offshore corporations? Did you ever wonder why they buried Anderson as quickly as they did? Since Anderson was the accounting firm that was largely responsible for setting up the fraudulent offshore enterprises; do you think it might have been to cover up the paper trail to all the other illegal offshore corporations?
Derivatives are financial weapons of mass destruction and the brightest financial minds in the world do not have the answers on how to keep our financial markets together when the derivatives implode. Do not forget the failure of Long Term Capital Management in 1998 and how that fiasco almost caused the financial markets to fail. Today, Fannie Mae and Freddie Mac are possibly the largest derivative abusers and they are in the news right now. These derivative positions will encounter all kinds of problems as interest rates rise. Rising interest rates will cause horrible financial problems for the economy and the shareholders of their companies. You should take every opportunity to learn as much as you can about the risks associated with derivatives and rising interest rates.
The saddest part to this story is the possibility that the state of New York will eventually elect this man, Spitzer, as Governor of New York. Now that is a crime that the residents of New York should be held accountable for.
Have you ever taken the time to understand how the money was created to propel this economy forward? Do you think that the creation of debt is a healthy environment to build a strong and solid economy?
How many of you have been conned into the debt game? How many of you are in a situation where you now have accumulated debt up to your eyeballs? Low interest rates have been a two sided event. On one hand you have the benefits of refinancing your homes at unbelievable low mortgage rates; on the other you have succumbed to the drawdown of all equity from your homes to buy and live beyond your means. The sad truth to this event is; as interest rates begin to rise the equity that has been built up as a result of the low interest rates will evaporate leaving only the debt behind. There is no doubt that at some point in the future you will be underwater and rising interest rates will be the culprit. Do you think that you will be able to sell your homes? Do you think that you will be able to afford the new increased mortgage payments you will be forced to pay on your adjustable rate and interest only mortgages
These are questions you must deal with now because tomorrow may be too late! For those of you who own interest only loans, you better start praying now. With mortgage rates at all time low levels how can you possibly opt for an adjustable rate mortgage or an interest only mortgage when you have the opportunity to lock in long term historically low interest rates and payments?
How many of you seniors have pulled your money out of the safety of cd’s and short term governments to receive a higher rate of return? I know the returns you have received for the last two to three years have been horrible but I also know that rising interest rates are just around the corner and rising interest rates will destroy the value of your principle in these new long term fixed investments. If you have invested in long term bonds, where your capital is tied up for years, you need to be fully aware of the risks you face. The major risk you face is loss of principal in the event rates rise and you need to cash in your long term bonds.
I won’t even begin to talk about the risks associated with Junk Bonds and Ginnie Mae’s, because that is a whole separate topic. If rates rise dramatically, these long term bond investments may be worth a fraction of what you paid for them in the event you need to sell and get your money before they mature
Very few investors understand the circumstances surrounding the high interest rates experienced in the late 70’s and early 80’s. The important point to know and understand is that the circumstances surrounding the events that gave us a 20.5% prime interest rate in 1980 are in place today and the magnitude of seriousness dwarfs the events of the late 70’s and early 80’s. Debt is the most serious event that a consumer, corporation and government must deal with in securing the sound financial and economic future of that entity.
Entities do not go broke when they have no debt. Debt is the cancer that has destroyed every democratic society ever created. The disastrous amounts of debt in our society today, on every level, family, corporate and governmental are unprecedented in the history of mankind. There is very little chance that most of this debt can be collected. Our elected officials are doing everything in their power to continue this debt buildup.
The sole purposes of several years’ worth of falling and low interest rates were to force savings out of traditional investments in an attempt to resurrect the “.com boom” and to give added liquidity and buying power to other industries, such as housing, in an attempt to try and borrow our way to prosperity. Our leaders have done everything in their power to stimulate and resurrect the “Good Old Days” but it seems that the only thing they have succeeded in achieving is building an unprecedented amount of debt that eventually will have to be paid back or defaulted upon.
There is no question that when the time comes to pay our debts that growth in the economy will slow. When this time comes families will be forced to make budget cuts and there are a lot of industries that will suffer. The only long term solution is to pay off or pay down debt and build savings. Investment capital for economic growth should be fueled from savings rather than borrowing.
The important point that many of you do not realize is that the price of running huge budget and trade deficits is higher interest rates. This is not a complicated subject to understand as all one has to recognize is the fact that there is only so much of a good thing that anyone can want or have. Take our dollar for instance; for years foreigners and foreign central banks have collected huge quantities of our dollar. In the beginning this made sense as the dollar had value to it and these foreigners enjoyed a huge trade advantage in the currency game, by owning a strong dollar versus their own currency. After years of excessively huge increases in debt, both trade and budget, these foreigners are asking themselves whether they need to accumulate any more dollars, particularly when the dollar has fallen by more than 30% in the last two years.
These foreign countries have taken a beating by owning the dollar versus other options that are available to them, and they are tired of seeing their wealth destroyed simply because the US is completely out of control in its spending.
If our Government were a business would you want to loan it money when their debt is running at unprecedented and out of control levels with no end in sight? At what point do you begin to ask yourself whether the US can pay its bills with anything other than more “worth less paper?” Very few American people have asked themselves this question; foreigners, who are getting creamed, by owning our dollars, are asking themselves this question every day.
As these foreign holders of our debt begin to realize they no longer have an appetite for funding the frivolous buying habits of the American consumer they will then turn to other investments. This change of direction will offer benefits to their own people and wealth that is not created by a printing press. Interest rates will rise and in the end there will be a major challenge to exactly what “full faith and credit” means to you the American Taxpayer.
We know, in our own personal lives, the debt we have accumulated is about all we can afford. Just imagine having to tack on another $25,000 per person to satisfy the government’s part of the debt that YOU OWE INDIVIDUALLY! Are you thinking yet? This is a conservative figure that does not include the Governments obligations to the future amounts it “hopes” to be able to pay for programs like Social Security, Medicare and Medicaid. This is serious business and measures must be taken to change the path we are on. These foreign owners of our debt have us at their mercy and they possess “financial weapons of mass destruction” which they will use for their own benefit and at their own time of choosing. Americans also have short memories and therefore we forget that these foreign countries do not have American interests at heart but their own interests at heart. Turn the calendar back twenty-five years and remember the relationship we had with these foreign countries. We may have short memories but do they?
When they decide they no longer want to own our debt they will begin to spend those dollars to buy the natural resources to build their own countries. I do not blame them in the least for thinking of themselves. I believe they will buy the best companies in the world to meet the supply shortfall they have in their own countries. These foreigners own hundreds of billions of dollars and when they make up their minds to liquidate their dollar positions we will have some very serious problems in this country. Not only will they buy our best companies and force interest rates to much higher levels, but they will also force us to deal with inflation as we try to absorb these dollars coming home.
This is a very complicated issue to understand but it is an issue that you must begin to deal with or be swept away in the losses that will result in the changing of the guard. The Asian Countries are beginning to gain a taste of what Americans have taken for granted for years and they want more. The Asians are beginning to awaken to the 21st Century and this is creating a huge demand on the dwindling supply of the world’s natural resources. This will cause huge natural resource shortages and inflation that will only worsen as the years pass.
The Chinese are coming and they want what you and I have and there are 1,300,000,000 of them. Ten years from now it will be the Chinese that are calling the shots and we may find ourselves dancing to their tune. This does not have to be a bad thing if you properly plan and prepare. You need to recognize that the affordability of things like cheap sources of fuel is a thing of the past. Fuel to run our economy, heat our homes and drive our cars is going to be more expensive and the things we take for granted may become luxury items down the road. Very few Americans have the foresight to see and understand these unfolding events. The Chinese are going to exert tremendous new demand on the world’s natural resources at a point in time where the supply of the world’s natural resources has peaked and begun to fall. I believe that five years from now the US will be very sorry we ever outsourced a single job overseas.
I hope I have been able to generate a series of questions in your head that propel you to seek answers. I hope you begin to listen to those who are so desperately trying to reach you. You must realize that they are only trying to help you. They have websites that they can share with you where you will be able to more clearly understand the reasons why we think the way we do. If you were to have an understanding of the events that we feel are about to unfold then we believe you may view things differently and adjust your investment portfolios and your thinking accordingly.
You must begin to realize that a dollar bill is not a payment of debt but an IOU. You must begin to realize that those people who have accumulated the most dollar bills are beginning to take offense to the fact that the US just prints more dollar bills as a means to spend money it does not or will not have. They realize they must liquidate these dollars to protect themselves against the further printing, or devaluation, of their reserves. When you begin to realize that that IOU will someday be converted into hard assets then you will begin to understand why we think and feel the way we do.
One day when the light does come on, you will be leading the discussion and others will call you negative. It will be at this point in time that you will fully understand how we feel and why we think the way we do; welcome to the “Real World!”
Yes we are “gold bugs” and damned proud of it! We know that the only true money is gold. Gold is pure wealth and it stands on its own.
To discover a body of ore and turn it into a producing gold mine takes seven years on average. To mine gold from the ground is a very expensive and time consuming event. Gold must first be found, then reserves proved up through drilling, then capital must be raised to put the mine into production.
In essence; what you have above ground is what you “got!” This is why gold maintains its value. From the beginning of the monetary system gold has been used, universally, as money. An ounce of gold is an ounce of gold; it stands on its own merit, it is not an IOU or a piece of paper that can easily be duplicated.
Those people who fully understand this have been quietly accumulating gold for years and they now have a great deal of it and one day they know that paper will crash and gold will be back and those who have the gold will make the rules.
CONCLUSION:
I hope this article will be of help to all in understanding that you need to be responsible for yourselves and the decisions you make which will dictate your financial futures. You need to learn as much as you can so that you will better understand how the future will unfold. I would love to say that I have the answers, but I don’t and I have yet to meet anyone who does. I only know that exponentially expanding our debt is the absolute worst thing that your families and our nation can do in an attempt to resurrect a period of time that was fueled, by the invention of the internet and Y2K, and not to be repeated. You must begin to pay down your debts and start to save. You must fuel growth from savings and not debt. I only hope it is not too late.
This is a very serious subject and I hope I have been successful in reaching, a few of you, to stir the desire to learn and educate yourselves. Do not accept, blindly or as gospel, the explanations that you are being given today by those who have a vested interest in the outcomes they hope to achieve, by encouraging and practicing the worst of unsound financial practices available to man.
As money dries up for all the “free-be” programs of the future, you will recognize that you are responsible for the poor decisions you make along the way. The time will come where the topics, I have, just touched upon here, will become painfully and blatantly obvious to all; the only question you need to answer for yourself is the question of whether you will be a survivor or a victim. You are the only one who can decipher the outcome to this question; at that point in time you will have only yourself to blame for not taking the time to educate yourself to the truth.
For those of you on my e-mail list I hope to have a complete article for you shortly after the beginning of the year. I am very excited about what I am working on. For those of you not on my FREE e-mail list there is room as I am completely up to date and can accommodate new subscribers. You can get on my e-mail list, at no charge, by responding to the e-mail address below.
I wish all of you a Very Merry Christmas, Seasons Greetings and a Happy New Year. I hope the future brings great happiness and prosperity.

Mike Hoy December 23, 2009