The U.S. government’s entitlement spending is currently making Americans dependent on government. We are all witness of how the unemployment rates in the U.S has soared this past few years. Americans who have become dependent on unemployment checks and food stamps will likely soon abruptly find out that they must begin to fend for themselves without any help from the government. The result will be many Americans turning into wild animals and becoming so desperate that they will have to rob and burglarize their fellow neighbors who were smart enough to prepare, or else they will risk starving to death.
As a result of QE2, the Federal Reserve is now buying 70% of U.S. treasuries, up from previously only buying 10% of treasury bonds. Foreign central banks are now buying just 30% of U.S. treasuries, compared to previously buying 50% of treasury bonds. The U.S. budget deficit in the month of February reached a record $222.5 billion or $2.67 trillion on an annualized basis.
With the Federal Reserve now monetizing our debt in full swing, a complete and total loss of confidence in the U.S. dollar could be imminent. Just like how nobody in the mainstream media was calling for the collapse of Egypt’s government a few months ago, almost nobody in the media believes a collapse of the U.S. dollar could possibly take place anytime soon.
The Federal Reserve can deny all it wants that the U.S. is experiencing inflation, but with the cost to print a single U.S. dollar paper note rising by 50% since 2008, massive inflation rates is here right under Federal Reserve Chairman Ben Bernanke’s nose. Every day that goes by, China is quietly implementing more and more steps that expand the yuan’s use in cross border trade, in order to position the yuan as the world’s next reserve currency.
So few Americans are presently preparing for hyperinflation that if hyperinflation broke out today, approximately 90% of Americans won’t have the means to put food on the table or put fuel in their automobiles. During the upcoming hyper-inflationary crisis, food stamps will no longer have any value at all and all U.S. entitlement programs will come to a complete halt. Americans will take to the streets like the world has never seen before and unemployment rates would soar through the roof.
The fact that the Dow Jones has declined significantly in recent days, in our opinion means that the odds of QE3 being launched as soon as QE2 is over, are now much higher than they were several weeks ago. The other big question today is, if in the unlikely event there is no QE3, who will fill in for the artificial buying demand currently coming from the Federal Reserve. After all, with no QE3, the Federal Reserve will go from buying 70% of treasury bonds to being a seller of U.S. treasuries. We are 100% sure that foreign central banks aren’t itching to jump back in to fill the hole.
From April to August of 2010, the last time the Federal Reserve allowed its balance sheet to shrink, the Dow Jones fell by over 1,000 points. If Bernanke doesn’t soon begin to leak out the strong likelihood of QE3, we could see the stock market decline by 1,000 points or more, which will force Bernanke into launching QE3. If we see a major sell off in stocks, NIA doesn’t necessarily think that precious metals prices will follow. In fact, we could see gold and silver rise along with the Dow Jones falling. My predictions is that Dow Jones gold ratio would to decline to 6.5 in 2011.
This means even if the Dow Jones fell to below 11,000, we still believe gold is likely to rise to around $1,600 to $1,700 per ounce this year, with silver soaring to around $42 to $44 per ounce.The worst decision any American can make is to sell their gold and silver and go long U.S. dollars, hoping to buy their precious metals back at a lower price in the future.
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