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Are You an Accidental Lender?
By John | May 13, 2011
Markets have been in turmoil recently. Turmoil creates confusion as to where one should be invested. Let’s take a step back and try to see the forest for the trees.
We know the Federal Reserve has announced they will discontinue QE2 at the end of June. Different opinions have been expressed regarding the implication for U.S. Treasuries – the primary beneficiary of the Fed’s QE2.
Some believe Treasuries could be a good investment now, even though the Fed is backing away from the market. I don’t agree.
In the short run, I don’t pretend to know what the market for U.S. Treasuries will do. What I do know is that the U.S. Government, the issuer of Treasuries, is essentially bankrupt. The U.S. cannot possibly fulfill its promises and pay back Treasuries with full purchasing power. In fact, it is not even pretending to do so, as the Federal Reserve has targeted an inflation rate of 2% per year.
Why would you want to loan money to a bankrupt entity? Just because everyone else is doing it? Does that make it a sound investment?
Even if you don’t own Treasury securities, you are still loaning money to the U.S. Government. How? Do you hold Federal Reserve Notes in your wallet or bank account? Are you aware that those are unsecured, promissory notes, backed only by the “full faith and credit” of the U.S. Government? Yes, that same U.S. Government that is bankrupt!
That is why I encourage everyone with savings – anything you don’t plan to spend anytime soon – to take those savings out of dollar denominated assets and put them into hard assets: Gold, silver, land.
You need to protect your savings from devaluation. Don’t be an accidental lender to the U.S. Government. Don’t exchange your hard-earned savings for worthless paper. Own something real.
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