Britannia Radio

An Answer to the Most Popular "End of America" Question By Porter Stansberry with Braden Copeland Saturday, February 5, 2011 I've been on the radio a few times in the last month. Producers are contacting us with interview requests because of our new promotional video, "The End of America." I imagine most DailyWealth readers have seen this video already. You know the core components of our argument: The debts assumed by the Western democracies will overwhelm their economies and lead to the end of our current dollar-denominated, global currency regime. This has profound implications for Americans' standard of living and our empire's role in the world. Doing these interviews and taking call-in questions from people around the country reminds me of why we made the video: People suffer from a shocking lack of knowledge about the serious financial problems facing our country. For example, the most popular question is: "When will the crisis begin?" The question assumes we ought to ignore the collapse of the automakers, the complete destruction of America's investment banks, and the receivership of the world's largest mortgage firms (Fannie and Freddie), and the world's biggest insurance company (AIG)… The question implies nothing unusual has taken place with housing prices… or in the markets for strategic commodities like lithium, copper, oil, coal, and corn – all of which are soaring in the face of the moribund U.S. economy. The question assumes nothing is going on with the value of our dollar, despite silver trading near $30 and gold trading close to $1,500 – up 100% in only two years. We respond to the popular question with a question of our own: What will have to happen before you'll say we're in a crisis right now? How high will gas prices have to get before your neighbors notice something is wrong? How high will gold have to get? Or silver? How many banks will have to go under? How high will unemployment have to rise? How many cities will have to go bankrupt? Where's your threshold? How bad will things have to be before you begin to see what's really happening? In addition to raising these questions, I've compiled a list of seven key facts that might spring people into taking action to protect themselves. They are the factors I believe MUST lead to the end of the global U.S. dollar standard – what we call "The End of America." 1) The price of gold has gone up 10 years in a row. We can't think of another market that's ever risen for 10 consecutive years. This is a historical anomaly, and it means something has gone badly wrong with the world's reserve currency (the U.S. dollar). Markets, if left to find their own equilibrium, will naturally fluctuate. Gold isn't fluctuating. Its steady move up proves something strange is happening to our money. 2) Our government's deficits are out of control. The government's annual deficits now routinely surpass $1 trillion. The first $1 trillion deficit came in 2008 – and the government explained it away as the consequence of the financial crisis. But we racked up another $1 trillion deficit in 2009 and yet another in 2010. We'll have another in 2011 and so on. Our national debt has doubled since 2005. We've borrowed more money in the last five years than we had in the entire history of our government until then. This isn't sustainable. 3) The government cannot increase tax revenues enough to cover our spending or repay our debts – ever. Our annual deficits have become completely unlinked to taxes. Total federal income taxes and corporate taxes generate $1.1 trillion a year in revenue, and we still ran a $1.3 trillion federal deficit last year. So even if we increased tax revenues by 100%, we would still have fallen $200 million short. This is totally unsustainable. 4) Special-interest groups – particularly government unions – are looting our Treasury. Self-serving special-interest groups have completely hijacked government spending. We now spend $200 billion a year on federal pensions. We're spending another $450 billion on welfare. This spending, combined with our defense spending ($700 billion), exceeds total federal tax revenue and leaves nothing to pay the $200 billion in interest on our debt, nothing to pay for actual government services (like roads), and nothing to pay towards the inevitable Social Security/Medicare shortfall. Remember… most voters do not pay taxes. It's politically impossible to reform this interest group-based spending. These people are robbing the Treasury. They will cause our currency and eventually our government itself to collapse. 5) We're printing money just like the banana republics we used to mock. To support the government's runaway spending, the Federal Reserve is now continuously buying government debt. This process was commonly called "monetizing the debt" or, more simply, "printing money." In addition to the inevitable economic consequences of monetizing debt (massive inflation), there's another, even more serious problem: a lack of confidence in the leadership of the Fed. We would support an audit of the Fed. We would support replacing Fed Chairman Ben Bernanke. After all, Bernanke has alternately defended his decision to print massive quantities of new money and denied ever doing it. However, we are certainly aware that as people (rightly) lose confidence in the Fed and in the dollar, there will be serious consequences for our economy. 6) We can't repay our debts. Total debt outstanding in the U.S. currently exceeds $55 trillion. That's $681,165 in debt per U.S. family. There is simply no way to repay (or even maintain) debt of this magnitude using the income of the average American family, which is slightly less than $50,000 per family per year. Interest alone on these debts (based on a 5% rate) would total $34,000 per family every year. Total debt in the U.S. economy is unsustainable and can't be financed without printing vast new sums of money. 7) Shockingly, new debt issuance in the U.S. is soaring, with the lowest-quality debtors borrowing record amounts. Despite all the evidence that the U.S. economy carries far too much debt, both public and private debt issuance soared to new record levels in 2010. Overall, more than $3 trillion in new corporate debt was issued last year – the second record year in a row. And junk-bond issuance set a new, vastly higher record. In 2010, 509 speculative-grade corporate borrowers sold $287 billion worth of new debt. That compares to the previous record (2009) of $167 billion. Our economy has become so warped by its debt load, it cannot function without ever-larger amounts of debt. In summary, anyone who carefully looks at these numbers must realize this is not safe and will not last long. That's why I'm telling everyone: Don't ask, "When will the crisis begin?" Instead, ask, "Where can I get the best deal on gold and silver bullion to protect my family's finances?" Good investing, Porter Stansberry P.S. Please carefully think about the facts I list above. Like it or not, these issues are going to affect you and your family in the months and years ahead. Ignoring this problem will not protect you from it. What do I think people should do right now to protect themselves? Watch this video, for free, to find out. Further Reading: "When I talk about 'The End of America,' I don't mean the end of our political union (although I won't rule that out)," Porter writes. "I'm talking about the end of the U.S. dollar as the world's reserve currency." Read more of Porter's End of America thesis: Two of 2011's Surest Bets, The Next Chapter in the End of America, The Single Most Important Financial Step You Can Take Right Now, and Why Gold Is a Sure Long-Term Bet. And be sure to check out this essay: This Is Why There Are No Jobs in America. Our sister site The Daily Crux called it the "best rant of 2009." CHART OF THE WEEK: JEFF CLARK'S BREAKING POINT The idea behind this week's chart comes to us courtesy of supertrader Jeff Clark. He considers it one of the most important charts in the world right now… Our chart is the past year's action in the 30-year Treasury-bond rate. This is one of the most widely followed interest rates in the world. It's an excellent indicator of how much Uncle Sam is paying to borrow money. As you can see from this week's chart, the T-bond rate has surged in the past few months. In an excellent Growth Stock Wire piece this week, Jeff warned us it's flashing a bearish signal for the stock market: There were two other times in my career when long-term interest rates rose dramatically. One was in 1999, when the yield on the 20-year Treasury bond rose 21% between April and December. Stocks peaked three months later. The other time was in 1987. The 30-year yield rose 21% between April and August. The stock market crashed two months later. A similar rise this time would put the 30-year yield somewhere around 4.90%. That's the breaking point in my book. And we're slowly inching closer toward it. Jeff is the smartest trader we know… so when he issues a warning like this, we pay attention.