SOTT summary of the transcript
Economic Factors at Play
I know that to most people, the situation seems to be getting better in America. Stocks have recovered all their losses. Real estate has rebounded. Unemployment and bankruptcies have dropped. But here's the thing: The unfortunate reality is that we are actually in a much more dangerous and precarious place today than we were six years ago. I'm simply following my research to its logical conclusion.
I did the same when I tracked Fannie Mae and Freddie Mac's accounting. Also with General Motors, Lehman Brothers and the rest. And when I began giving this warning in 2006 no one took me very seriously... not at first. Back then, most mainstream commentators just ignored me.
The same financial problems I've been tracking from bank to bank and from company to company for the last six years have now found their way into the U.S. Treasury.
And this is all coming to a head much, much sooner than most Americans think.
Of course, the most important part of this situation is not what is happening... but rather what you can do about it. In other words... Will you be prepared when the biggest financial crisis in America in more than 50 years, hits?
You see, I can tell you with near 100% certainty that most Americans will not know what to do when commodity prices - things like milk, bread and gasoline - soar. They won't know what to do when banks close... and their credit cards stop working. Or when they're not allowed to buy gold or foreign currencies. Or when food stamps fail... or their Social Security checks come to a halt.
In short, our way of life in America is about to change - I promise you. In this letter I'll show you exactly what is happening, and why it is inevitable.
Again, you can challenge every single one of my facts and you'll find that I'm right about each allegation I make. Then, I hope you'll take action for yourself.
Basically, for many years now, our government has been borrowing so much money (very often using short-term loans), that very soon, we will no longer be able to afford even the interest on these loans. Every single hour, of every single day, the U.S. government spends about $200 million that it doesn't have.
For a point of reference, consider that in just two months, the government borrows more money than the combined annual profits of the 100 biggest publicly traded companies in America.
Various other government agencies and private companies taken over by the government also have obligations of nearly another $5 trillion. We've already booked complete losses on $140 billion worth of these obligations. Yet they remain completely off the federal balance sheet.
When you add these other, genuine, federal obligations that exist right now, today, you come up with a total debt figure that's much more than $20 trillion. Far more than half of these debts were assumed under President Obama.
Today, we have more government debt than any country in the history of the world. We have more debt than every country in the European Union... combined... if the average real interest rate ends up being just 4% annually, incredibly, we'll spend $34.3 trillion to simply repay what we owe right now. If the rate ends up being 6%, we'll spend $43.1 trillion.
Now, of course, our politicians...believe (without any proof whatsoever) that they can stimulate the economy by even more deficit spending, so that it grows faster, allowing tax revenues to produce a surplus. Repaying these debts, they say, will be easy and painless.
Paul Krugman, one of the most widely read and respected "economists" in the country wrote about this incredibly naรฏve and ridiculous solution in a January 7th, 2013 New York Times column:
Quote
"There's a legal loophole allowing the Treasury to mint platinum coins in any denomination the secretary chooses. Yes, it was intended to allow commemorative collector's items - but that's not what the letter of the law says. And by minting a $1 trillion coin, then depositing it at the Fed, the Treasury could acquire enough cash to sidestep the debt ceiling - while doing no economic harm at all."You see, the U.S. government has one very important weapon to use in this crisis so far: We are the only debtor in the world who can legally print U.S. dollars. And the U.S. dollar is what's known as "the world's reserve currency."
You see, as things stand today, America is the only country in the world that doesn't have to pay for its imports in a foreign currency.
We've been able to consume as much as we want without worrying about acquiring the money to pay for it, because our dollars are accepted everywhere around the world. In short, for decades now, we haven't had to produce anything or export anything to get all the dollars we needed to buy all the oil (and other goods) our country required.
I believe our creditors (which include foreign countries and other investors here and abroad) will either completely stop accepting dollars in repayment... or greatly discount the value of these new dollars. I'm sure you think that sounds crazy, but as I'll show you, it is already happening.
In fact, Zha Xiaogang, a researcher at the Shanghai Institutes for International Studies, recently said "the shortcomings of the current international monetary system pose a big threat to China's economy."
That's why China is now actively taking steps to phase out the U.S. dollar because of its frustration with the U.S. government's mismanagement of our currency. And how does our government respond? We have the audacity to label China a "currency manipulator!"
In fact, I'm 100% sure of it. It's not a matter of "if," but "when." And I think it's going to happen much, much sooner than most people think. In fact, I believe that a series of new laws, set to go into effect on July 1st, 2014, are going to accelerate this trend... in very dramatic fashion.
Even more importantly, these new regulations set to take place on July 1st will make it nearly impossible for most Americans to legally protect their savings... so it's imperative that you get the facts, learn what you can do, and take action before that date.
Of course, I'm not the only one talking about the U.S. dollar losing its reserve currency status. Even some mainstream publications like the New York Post are recognizing the inevitability of this event. The Post recently reported that, "The US dollar is getting perilously close to losing its status as the world's reserve currency. Should it cross the line, the 2008 financial crisis could look like a summer storm."
And billionaire Ray Dalio of Bridgewater Associates, the largest and best-performing hedge fund in the world, told CNBC that it is "inevitable that the dollar's role as the world's currency will diminish from the dominant world currency to one of a few."
In fact, the same thing happened to Great Britain in the 1970s. Most people don't know this, but Britain's sterling was the reserve currency for most of the world for nearly 200 years... for most of the 18th and 19th centuries.
The final straw for Britain came in 1967, when things got so bad the Labour Party (the socialists) decided to "devalue" the British currency by 14%, overnight. They believed this would make it easier for people to afford their debts.
In reality, what it did was make anyone holding British sterling 14% poorer, overnight, and it made everything in Britain, much, much more expensive in the coming years. In 1975, inflation in Britain skyrocketed 26.9%... in a single year!
The government also imposed what was known as the "Three Day Week" in 1974. In short, businesses were limited to using electricity for only three specified consecutive days' each week and they were prohibited from working longer hours on those days. Television companies were required to cease broadcasting at 10:30pm... to save electricity.
In fact, the exchange value of the U.S. dollar has fallen nearly 20% since mid-2003, according to data from the Federal Reserve itself.
Just like in a Third World country, the government is radically devaluing the dollar and simply lying to everyone about what is really happening.
Whether you realize it or not, there is already a "run" on the dollar. Many of our creditors, like the Chinese, are getting out of the dollar as fast as they can via strategic commodities, like copper, gold, and oil. That's partly why commodity prices are soaring.
For example, as demand for U.S. dollars around the globe decreases, interest rates will skyrocket. Instead of getting a mortgage at today's incredibly low rates of around 3%, it might cost you 8%... or even 10%... or 15%.
Imagine what that would do to housing prices!
Stock prices will likely plummet by at least 40% in a matter of weeks as a result of this event in the currency markets. We had a small taste of this in 2011.
But believe me, it's going to get much, much worse from here.
This is why countries like Germany are taking nearly all their gold stored around the world, and bringing it back home. They are worried. And they have every right to be.
In the financial world, they refer to this as "capital flight." And what it means is, when people figure out that their savings in U.S. dollars are in jeopardy, they look for better and safer alternatives. And the really scary thing to me is, the U.S. government is trying to make protecting yourself all but impossible, with a series of new rules, set to go into effect, July 1st, 2014. I'll get to the specifics in just a minute.
This is why gold prices went up for 12 straight years before finally taking a break in 2013 and then skyrocketing again since the start of 2014.
This is why truly outlandish ideas like Bitcoin and other "cryptocurrencies" are now making the cover of mainstream magazines like Time and Bloomberg BusinessWeek.
People are getting truly desperate to protect their savings. When Germans realized their currency was being destroyed in the 1920s, they got their money into Swiss Francs and gold as quickly as possible.
When Argentineans realized their currency was being destroyed in recent years, they did the same - by moving money as quickly and as quietly as possible into a safer currency and into "hard assets" like land and precious metals.
And it's the same with the U.S. dollar right now. As it continues to lose its position as the world's reserve currency, it will cause a brutal downturn in our economy, which will be about 10-times worse than the mortgage crisis of 2008.
Listen to what Sam Zell, one of the richest people in America according to Forbes Magazine, said on a rare interview with CNBC: "I think you could see a 25% reduction in the standard of living in this country if the U.S. dollar was no longer the world's reserve currency. That's how valuable it is."
But our political leaders are now on a runaway, [psychopathic] suicide course.They've come to believe that narrowing the tax base and printing billions and billions of dollars is the formula for prosperity.
And the Federal Reserve Bank of New York recently found that municipal bond defaults are in fact much greater than rating agencies have reported. Standard & Poor's reported 47 defaults between 1986 and 2011, but according to the New York Fed, there were in fact 2,366 -- FIFTY times more.
And although it's gone almost completely unreported in the mainstream press, six U.S. communities were actually forced to declare bankruptcy in 2010... and there were a slew of new municipal bankruptcies in 2011 as well, including Jefferson County, Alabama, which at the time was the largest municipal bankruptcy in U.S. history.
Of course, that was topped in 2012, when three California municipalities declared bankruptcy in a matter of weeks, including the next "largest municipal bankruptcy in U.S. history"... Stockton, a city of 290,000 people east of San Francisco. And then we had the bankruptcy of Detroit in July of last year. Of course, I've been analyzing the problems in the Motor City for many years now.
And the truly amazing thing is that the U.S. Federal government is in even worse shape than the local governments!
The latest sign of a move away from the dollar as a reserve currency is that China and South Korea recently came to an agreement that allows firms to settle deals in either the Chinese yuan or the South Korea won instead of the U.S. dollar. "The agreement is part of a push among emerging countries to internationalize local currencies after the global financial crisis," reports Bloomberg.
Alan Wheatley, a global economics correspondent for Reuters recently wrote: ""Fed up with what it sees as Washington's malign neglect of the dollar, China is busily promoting the cross-border use of its own currency, the yuan.
"Displacing the dollar, Beijing says, will reduce volatility in oil and commodity prices and belatedly erode the 'exorbitant privilege' the United States enjoys as the issuer of the reserve currency at the heart of a post-war international financial architecture it now sees as hopelessly outmoded. "In fact, in the past couple years, China has signed international currency agreements with Germany, Brazil, Russia, Australia, Japan, Chile, the United Arab Emirates, India and South Africa."
Japan and India also recently signed a currency deal linking their currencies closer together, and lessening their dependency on U.S. dollars.
These agreements are part of a trend that started a few years ago, when a group of the world's most powerful countries, including China, Japan, Russia, and France, got together for a secret meeting - WITHOUT the United States being present or even knowing about the meeting.
Veteran Middle East reporter Robert Fisk interviewed a Chinese banker who said: "These plans will change the face of international financial transactions. America... must be very worried. You will know how worried by the thunder of denials this news will generate."
And sure enough, after Fisk published the details of this secret meeting, U.S. officials and central bankers from around the globe denied these plans.
But as the old central banking adage goes... how do you know exactly when a currency will be devalued? The answer is: Right AFTER the head of the central bank goes on television to adamantly deny that any such transaction will occur. (And guess who subsequently released a public statement about how the U.S. will "not devalue its currency"? Yes, you guessed it... former U.S. Treasury Secretary Tim Geithner [who's recently written a book admitting he was made to lie for the Obama Administration]
You see, the last thing a [psychopathic] central banker wants to do in the midst of a devaluation is to give people a warning BEFORE he can devalue. So they have to deny, deny, deny. After the announcement is made, it's too late for citizens and investors to get out.
Then, not too long after this secret meeting was held, the International Monetary Fund (IMF) issued a report on a possible replacement for the dollar as the world's reserve currency. The IMF, which is headquartered in Washington, D.C., is the intergovernmental organization that oversees the global financial system. They are THE most influential financial organization in the world economy.
The IMF has proposed replacing the U.S. dollar with something called "Special Drawing Rights," or SDRs. SDRs represent potential claims on the currencies of IMF members. This is a HUGE and important step to replace the U.S. dollar as the world's reserve currency.
China and Russia, for example, took one of their first big steps to replace the U.S. dollar back in 2010...To settle their ordinary trading of about $50 billion per year, they no longer first convert to U.S. dollars.
Since then, China has reached agreements with many other countries, as I mentioned earlier. Remember, they've already signed international currency agreements with Germany, Brazil, Russia, Australia, Japan, Chile, the United Arab Emirates, India and South Africa.
What does this mean?
Well, it used to be that China had to obtain dollars to buy gas supplies from, say, Russia. But not anymore. And Russia no longer needs U.S. dollars to buy stuff from the Chinese.
As the dollar loses its place as the world's reserve currency, foreign countries will no longer need to maintain large holdings of dollars. This means we will no longer be able to print as much money as we want - because there will be fewer and fewer people willing to loan us large amounts of money.
For example, the Seattle Times reports that in Mexico, Americans are no longer allowed to exchange more than $1,500 dollars per month.
In India, the country's tourism minister said U.S. dollars will no longer be accepted at the country's heritage tourist sites, like the Taj Mahal. And the U.S. dollar is no longer good anywhere in Cuba.
China is moving in the same direction.
Iran, of course, has already moved all of its reserves out of U.S. dollars, and Kuwait de-pegged it's currency from the dollar a few years ago.
And the Chicago Mercantile Exchange (the world's largest futures and commodities exchange board), now accepts gold to settle futures contracts. Until recently, the exchange typically accepted only U.S. treasuries and bonds as payment.
Just look at the actions taken by smart investors...
Bill Gross, who probably knows as much about currencies and debt as anyone in the world, runs the world's biggest bond fund. He was quoted by Bloomberg not too long ago, saying: "We've told all of our clients that if you only had one idea, one investment, it would be to buy an investment in a non-dollar currency. That should be on top of the list."
The dollar's days as reserve currency are numbered," reports the Financial Times.
And the Wall Street Journal recently ran a headline saying: "Dollar's Reign as World's Main Reserve Currency is Near an End."
This is why big U.S. companies like McDonald's and Caterpillar have begun introducing what are called "dim-sum bonds." These are securities denominated in the Chinese currency (the renminbi) by non-Chinese borrowers.
In other words, two of the biggest and most successful corporations in America realize they would have an easier time raising money by offering their bonds in a currency other than the U.S. dollar!
In January of this year, Justin Yifu Lin, a former chief economist of the World Bank, told a Brussels-based think tank: "The dominance of the greenback is the root cause of global financial and economic crises... The solution to this is to replace the national currency with a global currency."
Do you see where this is all heading?
It's no mystery why gold and silver prices have absolutely soared since 2000. And even after the recent pull back, gold is still up 356% since the end of the year 2000.
A March 6, 2014 Bloomberg story shows Buffet has reduced his company's bond holdings to their lowest levels in more than a decade. What Bloomberg didn't mention is that Buffett also moved almost 70% of his remaining government fixed income investments into foreign currencies.
Normalcy Bias
I know many of my friends, colleagues, and family members are still in serious denial about a major currency crisis in the United States. But this is natural...
In the world of psychology, they call this the "normalcy bias." You see, the normalcy bias actually refers to our natural reactions when facing a crisis. The normalcy bias causes smart people to underestimate the possibility of a disaster and its effects. In short, people believe that since something has never happened before... it never will. We are all guilty of it... it's just human nature.
What's scary is the normalcy bias often results in unnecessary deaths in disaster situations. For example, think about the Jewish populations of World War II...
As Barton Biggs reports in his book, Wealth, War, and Wisdom: "By the end of 1935, 100,000 Jews had left Germany, but 450,000 still remained. Wealthy Jewish families... kept thinking and hoping that the worst was over...This is one of the most tragic examples of the devastating effects of the "normalcy bias" the world has ever seen.
Just think about what was going on at the time. Jews were arrested, beaten, taxed, robbed, and jailed for no reason other than the fact they practiced a particular religion. As a result, they were shipped off to concentration camps. Their houses and businesses were seized. Yet most Jews STILL didn't leave Nazi Germany, because they simply couldn't believe that things would get as bad as they did. That's the normalcy bias... with devastating results.
We saw the same thing happen during Hurricane Katrina...
Even as it became clear that the levee system was not going to work, tens of thousands of people stayed in their homes, directly in the line of the oncoming waves of water. People had never seen things get this bad before... so they simply didn't believe it could happen. As a result, nearly 2,000 residents died.
Again... it's the "normalcy bias." We simply refuse to see the evidence that's right in front of our face, because it is unlike anything we have experienced before.
The normalcy bias kicks in... And we continue to go about our lives as if nothing is unusual or out of the ordinary.
Most of us in America simply cannot fathom these things changing. But I promise you this, things are changing... and faster than most people realize.
For a moment, just look at a tiny fraction of the evidence around us...
1/6th of Population Now on Foodstamps
Did you know that there are now more than 47 million Americans on food stamps? Those numbers are up 65% since 2008 and that translates to roughly 1 in 6 Americans according to the Washington Post. And in some towns, like Woonsocket, Rhode Island, one-third of the population is on food stamps.
Can a country really be in good shape when one out of every six citizens can't even afford to buy food?
43% of American Families are Essentially Broke
According to a recent article on MSN Money, about 43% of American families spend more than they earn each year.
Americans hold $13.1 TRILLION in household debt. And of those households carrying debt, the average credit card balance is a whopping $15,270, as of January 2014.
It's no wonder... The U.S. Census Bureau says the median household income in America is actually 9% LOWER today than it was in 1999.
So how in the world can we possibly "spend" our way out of the current crisis?
We certainly can't do it with savings... or increased earnings... the only answer is to print more money, which will hasten the fall of the U.S. dollar as the world's reserve currency. And that brings me to...
Disappearing Jobs
There's simply no one better at bending statistics than the U.S. government. Take the unemployment rate, for example. Back in the 1930s, anyone without a job but not retired was considered "unemployed."
Today, however, the government calculates unemployment mainly by counting the number of people receiving unemployment benefits. So when unemployment benefits expire, people are no longer counted... and the unemployment rate actually falls! Ridiculous... I know.
Every month, 14 million Americans get a "disability" check from the government. In some states, like West Virginia, nearly 10% of the entire working age population is on disability.
In some rural counties, like Hale County, Alabama, 25% of the working age population gets a disability check. Of course, because these folks aren't officially in the job market, they don't count in the government's "official" unemployment numbers.
In other words, the reality is, the true unemployment rate is much, much higher than what the government is reporting. In fact, even a news site as mainstream as CNBC says the figures may be misleading and could be more like 13.1% as of January 2014.
Not too long ago, American Airlines announced it was hiring 1,500 new flight attendants - jobs that pay an average $23,000 per year. 20,000 applicants responded -- so many that American stopped taking resumes after eight days.
A Forbes article near the end of last year described the amazing scenes at Walmart hiring centers. When a new Walmart opens, with 300 or so jobs, many paying less than $12 an hour, it's typical to have more than 10,000 job applicants.
Few Americans today realize that the United States has overtaken Japan and now has THE highest corporate tax rate in the developed world.
Debt-ridden U.S. Companies
Did you know that in 1979, there were 61 American companies that earned a top-level AAA credit rating from Moody's? Today, there are only three: Automatic Data Processing, ExxonMobil, and Microsoft.
Does this sound like an economic recovery to you... when only four companies in the entire country are stable enough to earn a triple-A credit rating?
To me, it is so obvious that we are about to experience a serious currency crisis, I can't believe people [psychopaths] can deny this reality with a straight face.
And I think that's part of the problem...
Today it's not uncommon to find editorials in some of the most respected publications, like the New York Times, stating that it's impossible for the U.S. to have a debt crisis.
And as I've mentioned several times, this entire process is going to accelerate dramatically in the next few months, because of a dramatic law change that takes effect July 1st, 2014.
House Bill H.R. 2847
In 2010, the U.S. Congress passed House of Representatives bill H.R. 2847.
Hidden within this bill is a provision known as "FATCA," which stands for the Foreign Account Tax Compliance Act.
This bill does several important things, as of July 1st, 2014:
1. It forces all worldwide banks to comply with the IRS if they have any transactions in U.S. dollars.
2. Because the U.S. dollar is still the world's reserve currency, it essentially means ALL WORLDWIDE BANKS, except for the smallest community institutions, must comply.
3. To comply, banks can either spend a fortune segmenting, tracking, and potentially "taxing" their U.S. dollar transactions by as much as 30%... or they can simply get rid of all of their U.S. customers.
In other words, the U.S. government is saying to all banks around the world: If you deal in U.S. dollars in any way, you have to give us full, unfettered access to all of these transactions... or you have to get rid of all of your U.S. customers.
The repercussions here are enormous:
For one, it means more and more institutions will move AWAY from the U.S. dollar, accelerating the already rapid worldwide move away from the dollar as reserve currency.
For another, it essentially makes it extremely difficult, if not impossible, for the average American to get some of his money out of U.S. dollars, and into more stable currencies via foreign banks.
Already, we've seen two of the largest banks in the world, JP Morgan Chase and HSBC, basically eliminate international wire transfers. Many small banks have reportedly followed suit.
And we expect many, many more banks to basically outlaw international wire transfers, the run up to this new July 1st law.
This is a clear example of Capital Controls. This is what a broke and desperate government does when they know the value of their currency is about to collapse.
We've seen [psychopathic] governments around the globe pull these stunts over and over again... right before a currency devaluation or collapse.
And now it's happenings right here, in the United States of America and I am really worried that many, many hard-working Americans are going to get caught totally by surprise when this crisis escalates.
People have watched the stock market rebound to higher levels than we saw before the last financial crisis. They've watched real estate prices jump back up. And they mistakenly think the worst is behind us... when in reality all that's been done is to pile on more debt.
Even with all that has happened in recent times... the downgrade of the U.S. government by Standard & Poor's... the spike in gold and silver prices... the calls for a new world currency... many Americans STILL aren't taking the steps necessary to prepare themselves. These folks are going to be in for a very rude awakening.
Remember... The government is not going to save you: Think about this: If the government couldn't rescue one small city after a natural disaster in New Orleans, how is it going to save all of us when the entire country is in a crisis?
You can either let things happen to you... or you can take a few simple steps and take charge of your family's fate.
The fact is, we can't afford our debts. We can't stop printing money. And as a result, we're going to see a massive dollar crisis.
The only question is... What will it take for you to recognize the crisis for what it is?
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The Dung is going to hit the rotary air mover. Just hope you're not standing in front of it when it hits.