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Is Your Cash Being Sucked into America’s Black Hole of Debt?

The “bailout plans” you hear about sound great.

There’s just one problem…

They won’t work.

Why?

Because this isn’t a “recession.” This is a DEPRESSION. And depressions follow different rules.

The problem is too much DEBT.

How much is too much?

Well, the last time debt hit a peak this big was in 1933 – smack in the middle of the Great Depression.

Back then, total public and private debt was 300% of GDP. But just last year (in the third quarter, to be precise) total debt reached 387% of GDP.

That’s a huge problem…

And it’s one you can’t solve by loading on more debt, like the government is doing.Instead, the key is to get rid of this debt.

Let America’s $6 Trillion
Debt Headache Make YOU Rich

Right now, in the U.S. alone $6 trillion in debt must be eliminated.

And until that happens, you can forget about a turnaround.

A guy spends too much… He owes money all around town… So he’s got to cut back his spending and pay down that debt before he can start spending again.

But who wants to believe it?

Sadly, nobody…

Instead, everyone is looking for a magic bullet that will kill the depression.

They think that if the government gives away enough of your tax money... somehow we’ll all be better off!

But make no mistake: this game is RIGGED.

And the next Madoff case… the next Ponzi scheme… is the U.S. government.

See, all this spending to save the U.S. economy will, in fact, destroy it. And the dollar too. It is only a question of time.

And here, I’ll let The Wall Street Journal explain why.

..the money for this spending boom has to come from somewhere, which means it is removed from the private sector as higher taxes or borrowing. For every $1 the government ‘injects,’ it must take $1 away from someone else – either in taxes or by issuing a bond.

You can’t cure debt with more debt, in other words. You’re only moving the pain around. And increasing it.

Instead... the debt must be ELIMINATED.

How?

There are only three ways.

And one of them - the one the Fed MUST pursue... because it is the only one that actually works - is where the big money will be made.

The Gods of Wealth Are Blowing You a Kiss

In fact, it’s already started.

Again, The Wall Street Journal let the cat out of the bag.

Since it can’t lower rates any more, it has begun effectively to print money in an attempt to bolster the economy.

Not one investor in one thousand “gets” what this means.

But those who do get it now have a ONCE-IN-A-LIFETIME opportunity to get very rich.

That’s because this swirling black hole of debt is sucking trillions of dollars worth of assets towards it.

Good money… bad money… smart money… stupid money… it’s all being pulled out of its owners’ hands.

And all you have to do is to put yourself in the right position... and it will come to YOU.

There are times when the gods of wealth blow you a kiss. And this is one of those times.

What most people just don’t realize is that these are the times when fortunes are made. Big fortunes. Little fortunes. Any size fortune you want!

The Dead Russian Who Saw It Coming

Nikolai Dmitriyevich Kondratiev

Nikolai Dmitriyevich Kondratiev was an economist who was in the wrong place at the wrong time.

Caught up by Bolshevism in Russia, he undertook a grand study of capitalist economic cycles.

Alas, his research seems to have taken him exactly where Stalin didn’t want him to go.

He was executed by a firing squad in Stalin’s Great Purge of 1938.

But before going to his grave, Kondratiev published a number of essays explaining the inescapable patterns of capitalist economies.

He worked out that they went from boom to bust... from peak to valley... from stability to crisis

And he revealed that the life of what he called a “super cycle” was about the adult life of a human being – between 50 and 60 years.

Kondratiev also worked out that major economic and financial crises tend to coincide with major political crises, too.

Just look back over the last 200 years and you’ll see what Kondratiev was talking about…

You’ll begin to see periodic crises.

There was a huge crisis in the 1930s... followed by WWII... which ended just 64 years ago.

About 60 years earlier were the bank panics of the 1870s in the U.S. And in Europe there was the Franco-Prussian War.

Go back another lifetime and you’re in the middle of the Napoleonic Wars.

Each period included plenty of financial trouble too.

Banks... and entire governments... went broke.

Don’t get this wrong. You should take Kondratiev’s work too literally. There were plenty of other crises too that didn’t seem to fit in his pattern.

But he was right about the major point: capitalism is prone to crises.

They don’t come very often. But when they do... there’s Hell to pay!

Another economist, Josef Schumpeter, said that capitalism needed periods of “creative destruction” to progress.

Well, we’re in the middle of one right now.

And this particular episode of destruction has wiped out TRILLIONS OF DOLLARS from Americans' retirement plans

It’s shocking, but the average retiree with $175,000 invested has lost roughly $52,500 in the stock market crash.

The lunkheads in Washington want you to believe the situation is “contained.”

But this crisis isn’t over anymore than the Great Depression was over in 1930.

Not only are we in the wrong part of Kondratiev’s “super cycle” but there are also five identifiable “black hole” catastrophes on the horizon.

And they’ threaten to send America into a slump far deeper and more dangerous than the one we face now… one that will be remembered with a shudder for generations to come.

The scale is shocking.

Research shows that the eventual losses could run to about $42 trillion in the U.S. alone.

It’s a grim forecast.

The 5 Coming “Black Hole” Catastrophes

We’ve already seen some amazing things... things you probably thought you’d never see.

The U.S. government has already promised trillions of dollars of taxpayers’ hard-earned cash to backstop the country’s leading banks.

But Washington is going to need a heck of a lot more to save the fatally wounding U.S. banking system.

As New York University professor Nouriel Roubini says:

Credit losses could peak at a level of $3.6 trillion for U.S. institutions, half of them by banks and broker dealers. If that’s true, it means the U.S. banking system is effectively insolvent because it starts with a capital of $1.4 trillion.

And if that weren't enough, U.S. house prices have plummeted for the first time in more than a generation.

(House values are down almost 50% in some areas.)

This means less wealth for families dependent on home equity… and a plunge in consumer spending.

But that’s only the beginning.

Because now the financial liquidation is leaking into the economy... and it’s wreaking havoc.

Let’s face it.

The economic world in which we’ve lived and prospered in recent decades has come to an end.

You see, what most investors fail to understand is that the stock market crash of October 2008 was just the frightening start of this crisis.

Just like the Great Crash of October 1929 was just the beginning of the Great Depression.

Now we have…

• Spiraling unemployment – 500,000 Americans are losing their jobs every month
• An unprecedented banking crisis – Total losses expected to reach $3.6 trillion
• A meltdown in housing – U.S. house values $3.3 trillion last year alone
• An economy that’s contracting almost as fast as it was in 1931 – It’s shrinking at an annual rate of 6% now compared to 6.4% back then

Only the foolhardy or the uninformed believe it’s going to stop there just because the government’s borrowed or printed bailout dollars.

As said before, events that are about to unfold mean America now faces an extreme contraction, the likes of which hasn't been seen in over 70 years.

Want a preview?

Just take a look at Iceland today.

Citizens of this peaceful and once prosperous island nation are now rioting in the streets because of the fallout from a financial collapse.

And it's an even more complicated story in the U.S.

Let's look at how this is going to play out… starting with the overwhelming fiscal strain on local governments.

“Black Hole” Catastrophe #1
State and Local Governments Go Bust

Over the last 20 years, state and local governments have enjoyed bull market revenues from increased property, sales and income taxes.

But those revenues are plummeting now.

With funds drying-up, credit frozen and obligations at record highs, state and local governments may not be able to refinance municipal debt.

The state of California is already on the brink of collapse…

At least two California counties are poised to declare bankruptcy. And the state is too broke to bail them out.

It’s now the biggest borrower in the municipal-bond market, with $51 billion in general-obligation debt outstanding.

And it faces a $42 billion deficit next year.

Consider for a moment this dire assessment from ratings agency Standard & Poor’s…

Without a successful infusion of cash over the next six to eight weeks, the state may be required to defer spending by executive order, schedule a special session of the legislature and/or possibly slow payments to local units, including school districts.

California is hardly alone in hurtling towards bankruptcy either… Massachusetts and 43 other states face total combined deficits of $350 billion by 2011.

And they’re all looking to the federal government to bail them out.

Do you think the Feds will come to their rescue?

You bet they will!

The government has already bailed out mogul investment bankers. So you can be darn sure the voters will not stand to see a state like California go under... Think of the poor government workers!

There's no way the Obama administration can allow it.

All this means an opportunity to generate steady tax-free income from “Obama Bonds” no matter what is happening on Wall Street.

You see, President Obama doesn’t invest in companies. He invests in governments.

And his seven-figure holding of tax-free municipal securities signal he’ll bailout states and localities rather than let them go the way of Lehman Brothers.

This could give you a steady income of 18% or more every year in highly rated municipal bond funds.

“Black Hole” Catastrophe #2
The Next Property Bust

There's an even bigger property bust on the horizon…

One that could be even worse for stocks... worse for banks... and worse for the economy than the residential mortgage-market collapse that triggered the current crisis.

We're talking about a complete crash in commercial property.

See, the banks didn't just dole out billions of subprime loans to unqualified homeowners…

They also shelled out trillions to build strip malls, "big box" stores, fast-food shops, movie theaters, office parks, warehouses, parking garages... and the whole network of businesses that sprung up around all those new "McMansion" boomtowns.

But with the residential bust in full swing and homeowners losing their homes, those businesses are going broke.

And no customers means no need for the commercial businesses to support them.

Just consider the following facts…

• Apartment building sales have fallen to half what they were in June 2007
• Banks are rapidly withdrawing funding from commercial property outfits
• The cost of commercial mortgages has soared in lock step with the rise in mortgage defaults

Worse still… retail losses are only starting to take their toll on commercial property.

Retail giants such as Starbucks, Whole Foods Market, Talbots and Ann Taylor are rapidly closing stores.

Others, like Circuit City and Linens-N-Things, have already hit the wall.

And the consolidation of the banking industry means bank branches across the nation are closing down. (Washington Mutual alone is shutting down 299 branches, many in just one city.)

And there’s an even bigger problem...

The government might be able to force banks to keep people in their houses in lieu of foreclosure by renegotiating terms down and down again (for a while, anyway).

But getting bank funding for unneeded strip malls is a whole different story.

So as these projects fall through… and more stores close across the nation… commercial real estate prices are going to crash.

In fact, they already are.

And any investment linked to them is going to see major pain and financial bloodletting.

According to Reuters…

The value of U.S. office real estate investment trusts has fallen by about half over the past year, as measured by the Dow Jones U.S. industrial and office real estate investment trust index.

Already, one has seen its share price collapse from a peak of nearly $70 down to $5. And bankruptcy by the end of this year is a real possibility…

“Black Hole” Catastrophe #3
America $2.48 Trillion Debt Time Bomb

It's the secret shame of millions of Americans.

It's also a massive looming market threat that's at least as big as the recent gut-wrenching housing bust... and many times bigger than the writedowns we've seen at banks.

What's the next financial plague to our economy?

$2.48 trillion in consumer credit debt.

It's more than Britain's entire GDP.

In fact, it's more than the GDPs of Italy, France, Canada, Spain, Brazil or Russia.

Credit-card defaults are expected to skyrocket to 10% in 2009 – double the average of 5% over the past 10 years — reaching $96 BILLION by the end of next year.

As you know, consumer buying drives 70% of the U.S. economy… Without it, we're in big trouble.

And this dirty credit debt is probably in your retirement portfolio.

See, just as they did with mortgage debt… banks and other credit card issuers sliced up all those credit-card loans and sold them back to Wall Street.

Then Wall Street sliced them all up again… packaged them as 'safe' debt… and sold them to the people who run your retirement funds.

(I’m sure you can imagine how fast this can spread.)

Thankfully, this has one silver lining…

It opens up a huge opportunity in one often overlooked sector of the retail market… discount retailers.

That’s because as long as consumers don’t have easy access to credit, discount retailers will continue to do well.

“Black Hole” Catastrophe #4
The Death of the Dollar

The U.S. government is furiously trying to spend its way out of the current mess.

But these so-called “fixes” will just make the problem worse...

See, instead of “correcting bad decisions, the bailouts will only redistribute the losses to the innocent bystanders – you and the other successful dollar earners.

Because sooner or later all that new money sloshing around will lead to chronic inflation.

And this will further wipe out savings.

It’s also the opinion of respected money manager Marc Faber, who recently wrote...

The stimulus package and the various bailouts engineered by the Fed and the Treasury will make matters far worse than if the free markets had been left alone to make the necessary adjustments.

The problem is the trillions of dollars the government is pumping into the system are coming out of an empty pocket!

That means they’re either borrowed or printed...

And as Peter D. Schiff, a regular commentator on CNBC, CNN and Fox Business, rightly says, “History clearly shows that borrowed or printed money only has the power to destroy.”

As you know, the size of the bailout has exploded in just a few short months.

Investment banks, automakers and insurers now all smell free money and are clamoring to get their cut.

According to Bloomberg, as of the end of last year, Washington had pledges $8.5 trillion to “fix” the economy...

That’s a jaw-dropping 60% of GDP!

And that’s before you add in President Obama’s new $787 trillion stimulus plan.

Even without Obama’s stimulus package, the bailouts come in at over $28,000 for every man, woman and child in the country... or nearly $60,000 for each of America’s 140 million taxpayers.

You’d think that because of the scale of this program the bureaucrats might be paying attention to how exactly they’ll keep track of all that loot.

But a recent article from The Washington Post confirms what we all fear...

Yet for all this activity, no formal action has been taken to fill the independent oversight posts established by Congress when it approved the bailout to prevent corruption and government waste. Nor has the first monitoring report required by lawmakers been completed, though the initial deadline has passed.

“It’s a mess,” said Eric M. Thorson, the Treasury Department’s inspector general, who has been working to oversee the bailout program until the newly created position of special inspector general is filled. “I don’t think anyone understands right now how we’re going to do proper oversight of this thing.

These incredible sums of tax dollars were allocated in a frantic rush within just a few months.

And that’s not nearly the end of this taxpayer-funded gravy train...

Lobbyists for every conceivable industry (even the Hispanic Plumbers Association!) are crowding into Washington to get a piece of the bailout pie.

And the Treasury recently magically morphed American Express from a credit card company into a bank so that it could qualify for bailout funds.

Make no mistake about it.

This corporate welfare program will go far beyond $10 trillion.

And that’s why the dollar will eventually fall.

See, it’s inflate or deflate... and given the choice, our government has picked inflation.

That means every dollar you hold will get weaker and weaker.

“Black Hole” Catastrophe #5
The 2009 Sucker's Rally

There’s no logical reason why the stock market should move higher this year…

Not when businesses are losing billions of dollars every month… and Washington is spending trillions of dollars it doesn’t have to fix the problem!

But the market can remain illogical for a very long time. And there’s good reason to believe that we’re about to see a huge rally.

But it will be a “sucker’s rally,” because only suckers will buy into it without protecting themselves.

If this sucker’s rally is anything like the one after the crash of 1929, then we could see the S&P 500 go up 48% in the next six months.

Fighting Irresponsible Government

One of the unfortunate lessons of the Savings and Loan debacle is that off-budget activities, loan guarantees and quasi-government functions can have a tremendous impact on the federal budget … Should a similar fiscal catastrophe hit GSEs, bailout costs could multiply to levels that would not currently seem credible.

Thanks to assurances from slick executives that the GSEs they ran were well-capitalized (and amid multimillion-dollar GSE lobbying operations) the house committee ignored warnings.

Had Congress listened, it might have been better equipped to avoid the recent sub-prime debacle.

Debt cannot go on compounding forever. At the rate it expanded in the 1980s, interest payments would consume 100% of GNP by the year 2015. No such thing will happen. Long before debt reaches the extreme, it will be wiped away. Either an economic deflation will cause the financial system to implode, or a political inflation of an extreme kind will obliterate much of the value of the debts denominated in dollars. One way or another we expect a great reckoning. A settling of accounts. We expect the long economic boom and credit expansion that began with WWII to come to an end.

The credit expansion surpassed any estimates at the time.

But the “settling of accounts” Lord Rees-Mogg warned of is now here. .

Investors are stunned now. But they will be downright devastated by their losses by the time this financial storm passes.

But just like in every crisis, a small number of investors will not only survive but also prosper.

How the Second Great
Depression Will Unfold

First off, it’s critical you realize that the Fed and the actually provoked this crisis.

In trying to head off the bear market back in 2001, the Greenpsan Fed slashed interest rates to keep the party going.

This not only put off the recession, it also pushed consumers, investors and businesspeople to borrow more money that they couldn’t afford.

And it created the biggest credit bubble the world has ever seen.

New York University economics professor calls it “the largest leveraged asset bubble and credit bubble in the history of humanity.”

That bubble has now burst, triggering the biggest deleveraging since the Great Depression.

This is not like any recession we have known in America. It’s a systemic global financial meltdown. In fact, IMF chief Dominique Strauss-Kahn said in a speech on February 8, that the United States, Western Europe and Japan are “already in a depression… the worst cannot be ruled out.”

Japan’s economy collapsed at an annual rate of 12.7% in the final quarter of 2008. This is a worse decline, by far, than anything Japan endured in its devastating “Lost Decade” , worse than any recession America has witnessed since the Great Depression.

Remember, back in the late 1980s, Japan had its own real estate crash.

Then it had a stock market crash, much like the one we saw here in America last October.

The Bank of Japan and the Japanese government came in with bailouts and ‘rescue’ packages...

But the bailouts didn’t work…

Even taking interest rates down to near zero... and running a deficit of more than 5% of GDP... didn’t do the trick.

Instead, stocks fell further. Property fell further, too. And consumers, feeling the pinch of recession, stopped spending.

Then business earnings plummeted.

And soon, the businesses themselves... and the banks who had lent them money... were in trouble.

Then the recession deepened and prices fell more.

Because everyone was trying to protect their own budget. And this put the squeeze on the whole economy.

From top to bottom – 12 years in total – the Japanese had lost the equivalent of THREE TIMES the nation’s entire GDP.

If that pattern is repeated in America, it will mean a total loss of $45 trillion – or about $500,000 for every family in the country.

And the government is powerless to stop it – Japan proved that too.

This is a different TYPE of slump.

In this kind of slump it doesn’t do any good to offer to lend people more money out of an empty pocket... because it was too much borrowing that got them into trouble in the first place.

They desperately need to get out of debt, not borrow more!

No.

The government won’t be able to stop the Second Great Depression by trying to spend their way out of it.

This didn’t work during the depression of 1929 to 1939 (only the war economy of 1940 to 1945 was able to do that)

And it didn’t work in Japan.

Despite the Japanese government’s bailouts, Japanese investors are about $15 trillion poorer than they were 18 years ago.

There is simply no evidence in the historical record that the financial authorities can stop a “great unwinding” like the one we are in the grip of right now.

They can distort it. They can make it worse. But there is no evidence that they can make it better.
Does this seem pessimistic?

If it does, it’s only because we’re now used to confusing blindness to the facts as cheerfulness.
Isn’t it better that you face reality for what it is and make the best of it?

For example, if you were onboard a ship that began to take on water, it wouldn’t mean you were a pessimist if you sounded the alarm.

That's why it’s critical that you take action now to protect your financial future.

You simply can’t sit this one out on the sidelines. Your family’s future, and your own, depend on it.

If you’re skeptical, good for you. It’s your duty to question all the information you receive.

However, during a financial catastrophe of this magnitude smart investors may hope for the best, but they should prepare for the worst.

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