traditional investment strategies- exposed !!

8/3/2019 Traditional Investment Strategies- EXPOSED !!

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Table o Contents

The Real Inconvenient Truth .............................................................................................4

Chapter 1: The Cause o the Decline o the Dollar ...........................................................5

Chapter 2: Why Traditional Investment Strategies Don’t Work ......................................11

Chapter 3: The Risk o Ination ......................................................................................13

Chapter 4: Summary ......................................................................................................19

Appendix ........................................................................................................................22

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The Real Inconvenient Truth:

It’s the dollar that’s melting, and yourretirement unds along with it!

Traditional investment strategies judge their returns

relative to the perormance o “the market” (the S&P 500).

I the market looses 50%, and they only lose you 45%,

they actually think they perormed well! In addition, they

do not adjust or ination, or or the declining value o

the dollar. Did you know that since 2001 the US Dollar

has lost about 40% o its value? This means that dollar

or dollar, your dollar based assets have likewise lost

40% o their value, in real terms. That is called wealth

destruction, but it is stealth, because most people do not

realize what is going on.

Most investors would just like to make money, regardless o the perormance o “the

market” and the value o the dollar. They want to learn how to protect themselves

against the destruction o the dollar, how to create wealth no matter what happens in

the stock market, and how to prosper in times o ination. At The Financial Freedom

Foundation, we will show you how to do just that. At no time have the investment

opportunities been greater than today, i you know how to make money in this market.

The Financial Freedom Foundation shows you how to make money in this market.

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Chapter 1: The Cause o the

Decline o the Dollar

Similar to how a share o stock is a measure o the value o a company, the value o

the US dollar, relative to other currencies, is a measure o the economic strength o

the United States and its Government’s ability to repay Federal loans by taxing its

citizens. As o 2009, our Federal Government uses all o the tax revenue just to pay or

its mandatory expenses. Most o the discretionary expenses are covered using money

borrowed rom oreign creditors or using money newly created by the Federal Reserve.

This is a major cause or the decline o the dollar. The US economic growth over the

past decade has been due primarily to credit expansion, or when you pour water into

a bucket, all the toy boats oat. Credit expansion has the eect o urther weakening

(diluting) the domestic currency. Growth through credit expansion is not sustainable.

When something is not sustainable, it eventually stops. When credit expansion slows

down and real economic growth does not fll in the gap, then the domestic currency

begins to collapse.

Fact: In 2002 the US Dollar entered into a long-term downward trend. The primary

cause o this trend was that the US posted a 4.5% defcit to GDP ratio, which

historically meant that the country posting such a defcit would experience a currency

crisis. The Congressional Budget Ofce (CBO) stated that in the best case scenario,

the US defcit is going to average 4.5% o gross domestic product (GDP) or the next

10 years. In act, the Ofce o Management and Budget projects massive decits or

the next 70 years!

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Fact: Not one penny o US government debt has been repaid since 1971. It has simply

been rolled over when it comes due (refnanced), and new defcit spending has been

borrowed as well. The United States is now running monthly defcits the size o what

used to be yearly defcits! Some economists say that defcits don’t matter, but i that

were really the case, then there would be no need or taxes.

Fact: Last year, the U.S. Federal Government borrowed about $10,624 or every man,

woman, and child in America, on top o the taxes it assessed.

Fact: In 2010, the U.S. Federal Government alone issued almost as much new debt as

the rest o the governments o the entire world combined!

Fact: The 2010 US Defcit was $1.3 Trillion. The 2011 US Defcit is expected to be

$1.5 Trillion. According to the Congressional Budget Ofce, the current economic and

social policies will lead to defcits averaging nearly $1 Trillion or the next 10 years.

Perspective: I you earned $10 per second, it would take you 3,169 years to earn $1

Trillion dollars.

Perspective: I you were to spend $1 Million dollars, every single day, since the birth o

Christ, you still would not have spent $1 Trillion dollars by now.

Perspective: The key to economic growth is capital reinvestment into the most

productive resources. However, government is an inefcient allocator o resources.

Government habitually removes capital rom the most productive resources and re-

allocates it to unproductive resources or to elite capitalists who help the reigning

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politicians get re-elected.

Fact: As o January 15, 2011, the Federal Government’s cumulative debt (US National

Debt) is already $14 Trillion (www.usdebtclock.org ).

Perspective: The US Government is already borrowing money in order to pay interest

on the national debt. A 3% increase in interest rates would raise the annual interest

payments on this debt by additional $400 billion per year.

Perspective: A $14 Trillion dollar national debt means that i you’re a tax payer, the

government has already spent $126,880 o your money that it hasn’t even collected it

rom you yet!! The worst part is that you owe most o that money to oreign creditors.

(At no time have the investment opportunities been greater than today, if you know how

to make money in this market. The Financial Freedom Foundation shows you how to

make money in this market.)

Fact: Foreign creditors, mainly China and Japan, own over 50% o the US debt.

Perspective: In 1956, Britain joined France and Israel in seizing the Suez Canal ater

Egypt’s nationalization o the waterway. Because the US owned most o Britain’s

national debt, President Eisenhower threatened the Brits that America would ruin

the pound sterling i Britain did not withdraw rom the Suez Canal. I that is how your

riends can treat you when you owe them money, it is not difcult to imagine that less-

riendly states could do the same to you, too.

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Fact: Freddie Mac & Fannie Mae have about $6 Trillion o debt on their books. Since

they were nationalized, that debt was taken on by the US Government, making the

current US National Debt almost $20 Trillion dollars in actuality!

Fact: According to even the most conservative measures, our US National Debt

already totals about 90% o our gross domestic product (GDP).

Fact: Total debt in the United States, including government, corporate, and personal

debt, has reached 360% o GDP.

Fact: The amount o past US Federal debt that is maturing in 2011, combined with the

new issuance totals approximately $4.2 trillion dollars.

Perspective: That is $4,200,000 million, in 2011 alone! This averages out to about

$16,000 million dollars per day! Even scarier is that most o the IOUs created to fnance

this defcit have short term maturities, meaning that it will have to be refnanced again

in just a couple o years. All o this debt is being loaded onto the back o US citizens as

debt slaves.

Fact: The Federal Reserve is now buying 75% o the newly issued Government debt,

because no one else is willing to buy it. This is how the US dollar is created out o thin

air, is spent, and then is obligated to be repaid by you. This lowers the purchasing

power o the dollar.

Fact: “Let us control the money o a country, and we care not who makes the laws”

-Amschel Rothschild, original head o the House o Rothschild.

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Fact: Government spending creates only an “illusion” o economic growth, but in

reality NO WEALTH was actually created, because the government can only give you

what it frst takes rom you and rom uture taxpayers, through taxation and borrowing.

Whatever the government spends today, it must take rom you today or borrow rom

others, with the promise that your children will repay it tomorrow.

Fact: Founding Father Thomas Jeerson stated, “I wish it were possible to obtain a

single amendment to our Constitution - taking rom the ederal government their power

o borrowing.”

Fact: Gold is money. Gold is real money. Gold is constant. Gold does not change in

price, its value is fxed. The US dollar and other paper instruments vary in value relative

to gold. The US Dollar and various US Dollar-based bonds are losing value so ast

that Gold appears to be rising in a breakout amongst all major currencies (USD, Euro,

Pound, Yen). The USD and US Treasuries are in a powerul bubble, at risk o puncture.

That possible puncture would be a US Treasury deault, with the associated declaration

that the US Dollar is no longer valid legal tender to purchase imported products in the

world market.

Fact: On Jan. 5, Delegate Bob Marshall, o Virginia’s State Legislature, pre-fled House

Joint Resolution No. 557, which proposes: “Establishing a joint subcommittee to study

whether the Commonwealth should adopt a currency to serve as an alternative to the

currency distributed by the Federal Reserve System in the event o a major breakdown

o the Federal Reserve System.”

Fact: Since the US Government removed itsel rom the gold standard in 1971, the

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Speculation: The 2010 budget release also suggests that the US Defcit could grow to

$18.5 Trillion by 2020. Debt interest payments alone would reach $912 Billion per year

by 2020, which is over $5,000 or every working person in America.

Perspective: In fscal year 2008, the spending or interest on the debt was $249 Billion

(21.7% o all tax revenues), which was more than the ederal government spent on

energy, education, environment, veterans benefts, and agriculture, combined.

Fact: 2009 was the fst time that mandatory spending (Social Security, Medicare,

Medicaid) exceeded total tax receipts by the Federal Government ($2.1 Trillion), even

beore any discretionary spending was taken into account!!

Perspective: This means that even i the Department o Education, Deense, were to

close, we would still be running a budget defcit, and the baby boomer are just barely

starting to retire!! Already about 10,000 baby boomers are reaching retirement age

every day. Cutting mandatory spending would be political suicide, even or the Tea

value o its paper money (the dollar) has lost 97.5% o its value when compared to real

money (gold). To see what this looks like, look at the chart below.

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Party representatives.

Perspective: The US Government has been living o so much borrowed money or so

long that eventually it won’t even be able to aord the interest payments on those loans!




Speculation: As o January 2010, the sum total o all “ununded government

obligations”, the government’s uture expenses or entitlement programs like Social

Security and Medicare, is estimated to total $106 Trillion dollars, or $344,000 per

citizen. This is roughly 750% more than the National Debt.

Perspective: Our nation’s total assets equal only $74 Trillion, or $240,000 per citizen.

In other words, even i the government were to take, by orce, every single penny o

wealth rom every single private citizen o the US, our nation would still be bankrupt,

by Trillions and Trillions dollars! When ununded obligations are taken into account,

our nation is completely broke and is living o o borrowed money. The only question

is, “Will oreign creditors continue to lend to us indefnitely?” When corporations

behave like this, their bonds become “junk bonds.” When an individual borrows 100%

o their credit limit, creditors simply stop lending to them. When something cannot

continue indefnitely, it eventually stops.

Perspective: Caliornia is in such bad shape that or 2009 tax returns, it had to send

people IOUs instead o cash. Caliornia comprises roughly 11% o the US economy. In

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comparison, Greece, which is causing such headache or the European Union (the EU),

is only 2% o the EU economy. New York, Michigan, Illinois and Arizona are not much

better o than Caliornia, due to their defcits and debt loads. There could be massive

side eects i a state the size o Caliornia had trouble paying its debts.

Fact: In January 2011, Illinois raised their state income tax rates by 67% in a desperate

attempt to balance their $13 billion dollar annual state budget defcit.

Fact: In 2009, 140 US banks ailed, which was the highest number o ailures since

the Savings & Loan crisis in 1992. The FDIC Deposit Insurance Fund has slipped into

the red or the frst time since 1991. At the end o 2009, the value o the und was $20.9

Billion in the hole.

Fact: In 2010, 156 US banks ailed, eclipsing the 2009 number.

Fact: As o September 2010, there were 860 more US banks still on the FDIC “watch

list” or having ailed the grading system.

Perspective: In the entire year o 2007, the FDIC and state regulators only closed 3

banks. In 2006, there were ZERO bank ailures.

Perspective: The FDIC already ran out o money once, assessed its members $5.6

billion more in unds, and is currently scrambling or ways to get more money or its

insurance und, so that it can liquidate more banks.

Speculation: According to the head o oreign exchange research at JP Morgan, by

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next year the dollar will have become the world’s “weakest currency,” due to the Fed’s

monetary easing program.

Fact: The IMF has already reduced the weighting o the Special Drawing Rights basket.

China and Russia have suggested that these SDRs replace the US Dollar as the world

reserve currency. I the Remnimbi starts trading more reely, it will be included in the

SDRs, which would even urther reduce the weight o the US Dollar.

Fact: Central banks currently hold 62% o their currency reserves in US$. Only 37%

o new reserves are being places into US$ (through the purchase o US Treasuries),

and 67% into Euros and Yen. This puts downward pressure on the dollar and upward

pressure on the Euro and Yen.

Perspective: Joseph Stiglitz is a Nobel Prize winning economist and Columbia

University Proessor. “The dollar’s role as a good store o value is questionable and the

currency has a high degree o risk,” Stiglitz said at a conerence on August 21, 2009,

“There is a need or a global reserve system. The currency reserve system is in the

process o raying. The dollar is not a good store o value.” Dollar denominated assets

loose value when the dollar looses value.

Conclusion #1: The US Government is living o o borrowed money and the trend

is accelerating. Foreign lenders are buying less o the US Governments debt, so the

Federal Reserve has to print the money to buy it. State and local governments are

acing bankruptcy. Banks are ailing at record numbers. Other central banks are quietly

selling their USD currency reserves. For these undamental economic reasons, the US

dollar has dropped in value and will continue to drop in the long-term, unless these

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causes o dollar weakness reverse themselves. The long-term decline in the value o

the US dollar aects your real wealth. However, with the proper actions, this knowledge

can be used to create wealth instead o destroying it. As depressing as the acts

are, you can actually thrive in this economic environment. The Financial Freedom

Foundation shows you how! Visit us at http://FinancialFreedomFoundation.org

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Chapter 2: Why Traditional Investment

Strategies Don’t Work

The traditional investment strategy is to “buy and hold” stocks and bonds. This

strategy represents “conventional wisdom.” This strategy puts you at maximum risk

to the whims o the market in return or a very limited potential upside. Conventional

wisdom is not always the wisest choice.

The traditional investment approach is based on equity, fxed income, and asset

allocation models. Most people have about 20-25 years o wealth creation beore

they need their unds or retirement income. The March 9, 2009 DALBAR Quantitative

Analysis o Investor Behavior ound that or the 20 years ending December 31, 2008,

equity, fxed income, and asset allocation und investors had average annual returns o

1.87%, 0.77%, and 1.57%, respectively. The ination rate averaged 2.89% over that

same period. In real terms, each o these traditional investments approaches actually

resulted in wealth destruction, rather than wealth creation, even beore the loss o

purchasing power due to the weaker dollar was taken into account.

Fact: The S&P 500 Index is a collection o the stock values o the 500 largest

companies in America and is considered to be “the market.” On January 2, 2001 the

S&P 500 closed at 1,283. Ten years later, on March 9, 2010, the S&P 500 closed at

1,272. Investing in “the market” (buying and holding the S&P 500) or the last 10 years

would have resulted in a 1% loss o value in nominal terms.

Fact: The US Dollar Index in January 2001 was 125.275 and the US Dollar Index on

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January 2, 2011 was 79.31, which is a 36.9% loss in the value o the dollar, in trade-

weighted terms.

Perspective: For moneys invested 10 years ago, that equals a combined loss,

in real terms, o 37% rom ollowing the traditional “buy and hold the market”

strategy. No wonder why people who only ollow traditional investment strategies

never seem to get ahead!

Fact: The US 10-Year Treasury note, priced in Gold, already shows a decline in value

o 50% below its 1995 value, in real terms. US Treasuries are supposed to be a “sae”

investment.

Fact: US interest rates are at a record low. I interest rates increase, the value o “sae”

US Treasuries will go DOWN.

Conclusion #2: Traditional “buy and hold” investment strategies don’t make or

preserve wealth. The Financial Freedom Foundation shows you how to create wealth

outside o the traditional “buy and hold” investment strategies.

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Chapter 3: The Risk o Infation

The Federal Reserve’s mandate is two old: 1) maintain price stability [control ination]

and 2) maintain ull employment. Its main tool to control ination and job growth is

by raising and lowering interest rates. To create jobs through economic growth, they

lower the interest rates. When interest rates are too low or too long, ination occurs.

To combat ination, the Federal Reserve raises interest rates, in order to slow down

the economy, which has the nasty side eect o causing more unemployment. When

massive unemployment is o greater concern, then the risk o ination does not get

properly addressed.

Fact: During two years rom December 2007 - December 2009, the US economy lost

8,363,000 jobs, according to the payroll jobs data.

As o October 2010, payroll jobs purportedly have increased by only 874,000 jobs.

The job shortage is even worse when people coming out o retirement and new job

entrants, both legal and illegal, are considered.

Fact: A smaller number o Americans are employed right now than 10 years ago.

Fact: Every time a public sector job is created, 2 private sector jobs are destroyed.

Fact: Ever dollar o economic stimulus must frst be taken rom us, then given back to

us, but at only 50 cents on the dollar, ater all the intermediaries receive their cut and

taxes are paid.

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Fact: Ofcial Unemployment in the U.S. is 10.2%, as o October 2009. The

Underemployment Rate, which includes people with part-time jobs who would like to

work ull time, is 17.5%, the highest it’s been since the Great Depression. The number

o the Actual Unemployed (known as U-6) is over 26.5 million people, all scrambling to

make ends meet.

Speculation: The group Shadow Stats, who uses the pre-Clinton era methodology,

shows the real Actual Unemployed number (U-6) to be above 22%.

Fact: On January 20, 2010, the Brookings Institution came out with a warning stating

that 30% o the nation was either in poverty already or headed to it. The report stated,

“The US is becoming like a ‘developing nation,’ with 39.1 million people living in

poverty. Many cities have already reached the 30% poverty rate - including Cleveland,

Detroit, Youngstown, Bualo, Syracuse, Dayton and Hartord, Connecticut. But poverty

is increasing astest in the suburbs.”

Fact: About 40 million Americans are also living on ood stamps. This is a new record.

Fact: In February, 2010, there were 5.5 unemployed Americans or every job opening.

Fact: Over 40% o those ortunate to be employed are now working in low-wage

service jobs.

Fact: The Employee Beneft Research Institute ound that just last year, 24% o

Americans have decided to postpone their planned retirement age, due to lack o

retirement unds.

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Fact: Between 2007 and 2009, o the millions o people who lost their job and ound a

new job, 36% o them suered a pay cut o 20% or more. Even those ortunate enough to

remain in their jobs have seen wage cuts, and many have even had to assume more duties.

Speculation: A jobless recovery is a contradiction o terms. When people earn less

money and cannot borrow money, they cannot possibly spend more money than

beore. The perceived economic growth is actually ination, but it is being labeled as

economic growth.

Fact: Janet Yellen, the new Vice-Chairman at the Federal Reserve. She has stated, on

record, that she is more worried about high unemployment than about rising ination.

Fact: In order to borrow money, the Federal Government issues IOUs in the orm o

US Treasuries. The largest purchasers o these IOUs are oreign central banks. I our

government needs more money than these oreign central banks are willing to lend

us, then the Federal Reserve essentially prints money or our government to spend,

through a process called monetizing the debt. When money is printed, ination occurs.

When too much money is printed, hyper ination occurs.

Fact: Over the past 24 months, according to the Continuous Commodity Index, overall

commodity prices have already risen 77%.

Speculation: As price ination accelerates, it will be incorrectly labeled as economic growth.



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Perspective: Commodities are upstream. Finished goods are down stream. What starts

upstream ows downstream, as companies take this increase in expenses and pass it

on to the end consumer, in the orm o price increases. The problem is, though, that this

ination is not caused by excess economic activity and excess demand, but rather by

governments printing money. Increasing interest rates cannot make this type o ination

go away, like Central Banker Paul Volker was able to do in the 1980s. Even so, ination

and increases in interest rates go hand in hand, because international lenders want

higher interest rates to compensate or the expected loss in value o the currency.

Speculation: In order to prevent the US fnancial system rom collapsing, the Federal

Reserve has already bought $2.6 trillion dollars o government securities and mortgage

backed securities. I interest rates go up just 1%, the Federal Reserve itsel could

become insolvent, due to the massive losses on these securities. You can track these

interest rates by looking at the yield on the US Treasury.

Fact: During the 3 months between November 4, 2010 (when the Federal Reserve

began Quantitative Easing II) and February 4, 2011, the yield on the 10 yr US Treasury

went rom 2.53% to 3.68%, which is a 1.15% increase.

Fact: 12 million US households already owe more on their home than what its worth,

and 8 million more have Loan-to-Value ratios o 95% to 100%.

Speculation: A 5% drop in home prices could push an additional 8 million people into

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negative home equity, with risk o millions o people walking away rom their current

home in order to buy one o the cheap oreclosures across the street.

Fact: Studies show that a 1% increase in mortgage interest rates usually leads to a

5% (average) drop in real estate prices. Over the next 2 years, $1 trillion o commercial

mortgages come due and need to be refnanced. I a drop in real estate prices cause

these loans to go under, so will the banks that hold them.

Speculation: We have 21 square eet o retail shopping space or every man woman

and child in this country. That is double what is needed. The bulk o retail trafc

is moving online, which is orcing dozens o anchor retailers to suer continued

earnings losses, such as TJ Maxx, Best Buy, Sears, ToysRUs, Stop & Shop, and the

supermarket chain A&P. These are all anchor tenants. When anchor tenants “go dark”

(close their underperorming stores beore their lease is up), the smaller tenants in the

shopping center tend to go under, too. Hundreds more community banks will close

because o these commercial real estate loans that will not be able to rolled over.

Fact: According to Reuters, the amount o residential oreclosures in the 3rd quarter o

2010 increased 10% over the previous year, coming in at a total o 1.2 million oreclosures.

Fact: When pending oreclosures and bank owned houses are taken into

consideration, the unofcial shadow inventory o homes is an additional 1 million

homes that need to be sold, which postpones a realistic housing market recovery by

another 2 years. This added supply could push prices down even urther, which could

lead to even more oreclosures and more bank ailures.

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Speculation: I the US housing boom rom 2003 to 2007 caused the entire US

economy to boom, then it will be capable o collapsing the same structures, because

o the vulnerability o debt. The Federal Reserve took on much o the housing sector

losses to prevent the US fnancial system rom collapsing in 2008. The added weight

o the continued housing sector losses continues to threaten the soundness o the US

fnancial structure.




Fact: Investors have already demonstrated that they think that the debt o certain

corporations is a saer investment than the Federal Government’s debt. Berkshire

Hathaway’s most recent 2 yr notes issue yields 3.5 basis points less than the 2 yr

US Treasury notes. Bonds issued by Proctor & Gamble, Johnson & Johnson, and

Lowe’s are also being treated by investors as being better credit risks than our Federal

Government, because their bonds are trading at lower yields than US Treasuries! This

is a very rare occurrence indeed, or US Treasuries usually orm the base o the yield

curve, serving as the “risk ree” benchmark above which the risk o all other debt

investments is measured.

Fact: On November 16, 2010, a 30 year mortgage (4.25%) was cheaper than a 30

yr US Treasury (4.33%). This iners that investors viewed a US homeowner as better

credit than the U.S. Treasury!

Fact: The 4 biggest pools o dollars are held by China, Japan, Russia, and India, as

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part o their central bank’s oreign reserves. China’s central bank owns $800 Billion

in US Treasury notes. Russia has $430 Billion US Treasuries in its oreign currency

reserves. Both China and Russia have been actively calling or the creation o a new

world reserve currency. All o China, Russia, India and Japan are currently diversiying

away rom US$ in their oreign currency reserves.

Fact: The global monetary system rests on the shoulders o the sovereign bond

market. In November 2010, the Federal Reserve announced it would buy $100 Billion

worth o US Treasuries per month, or the next 6 months. This should have caused

treasury yields to go down. Instead, ater the US Treasury oered details regarding

its Quantitative Easing II (QE2) bond purchasing program, the US Treasury yields

actually went up, rom 2.49% to 3.4%, and bond mutual unds had their biggest client

withdrawals since mid-October 2008 when investors pulled $17.6 billion rom bond

unds. The bond market contradiction to the Federal Reserve’s monetization plan is

without precedent in US bond market history.

Fact: In November, 2010, the leading Chinese credit agency downgraded the sovereign

debt rating o the United States rom AA to A+, citing the new round o quantitative

easing and serious deects in the US Economic Development model as undamentally

lowering national solvency.

Fact: On August 17, 2010, Moody’s Investor Service said the AAA ratings o the US,

UK, France, and Germany are well positioned, but ace new challenges that increase

the possibility o a downgrade. The 3 mentioned European countries have already

begun pursuing defcit reduction measures. The United States is moving the opposite

direction, trying to spend its way out o a recession.

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Fact: On January 20, 2011 a major US credit rating agency, Fitch, stated, “Record U.S.

Budgets defcits, due to stimulus measures, and a lack o a plan to reduce debt, may

undermine confdence in the dollar and raise ination concern. The U.S. fscal metrics

will be the worst o any AAA rated sovereign.”

Fact: On January 27, 2011, a dierent major US credit rating agency, Standard &

Poor’s, downgraded Japan’s credit rating rom AA to AA-, because it expects the

country’s fscal defcits to stay high in coming years, citing the welare costs and

revenue shortall associated with a graying population as adding additional pressure.

Perspective: They US has the same indebtedness trend as Japan, and demographic

trend as Japan, namely the baby boomer generation just now entering retirement age.

Fact: China has quietly shited its reserves out o long-dated treasuries with 10 and 30

year maturities, and moved them to treasuries with an average 3 year maturity.

Fact: From September 2009 – January 2010, China became a net seller o US

Treasuries, over $45 Billion dollars worth. According to Alan Rusking, the Chie

Strategist o RBS Securities, Inc., this was “a long enough period to hint strongly at a

trend.” Much o China’s selling has been in short-dated Treasury bills, but China has

not indicated that instead it will buy longer maturity U.S. government notes and bonds.

“That is the bad news or the U.S. dollar and the Treasury market.”




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EXPOSED

Speculation: The Fed has stated that it intends to continue to increase money supply

by monetizing the debt at an aggressive pace: as much as $1.25 trillion o mortgage-

backed securities, $200 billion o ederal agency debt, and $300 billion o Treasuries.

They are making these purchases in an attempt to keep interest rates at below market

levels to abricate a refnancing boom. While they have been somewhat successul

in keeping rates lower than they would be under normal market conditions, these

purchases are extremely inationary and won’t be easily reversed. This also creates the

illusion o growth.

Speculation: The German government’s 5-person council o economic advisers issued

a report that said, “Ater the massive global increase in U.S. dollar reserves in the past

years, an ‘uncontrolled exit’ rom the U.S. dollar as a reserve currency, especially in

emerging economies, is a possible trigger o instability in currency markets.” They went

on to say... “Countries holding ‘high’ dollar reserves should consider committing to

selling their dollar holdings in a coordinated way over a longer period o time.”




Speculation: PIMCO, the largest bond und in the world, announced in January 2009

that they were reducing their exposure to U.S. debt. On January 6th, Bill Gross, o

PIMCO, was on TV talking about U.S. Treasuries, how he would rather buy a German

bund (treasury) than a U.S. Treasury because o the two completely dierent directions

these two Central Banks are heading.

25




EXPOSED

Speculation: Kokusai Global Sovereign Open, the world’s 2nd largest actively run

bond und, announced they are also going to shun U.S. Treasuries in 2010.

Speculation: Consumer Ination, as reported by the Government in March, shows Year

over Year ination at 2.3%. The group Shadow Stats, who uses the pre-Clinton era

methodology, shows the real ination number to be just over 8%. This means that even

i no hyperination ever occurs, you are currently losing 8% per year in value i you buy

and hold paper-based assets.

Conclusion #3: The US is issuing more debt and investors are buying less o it. The

new money supply is growing quickly, which could directly lead to greater ination.

Ination is inevitable and is a orm o indirect taxation. Ination requires you to pay

more dollars to buy the same goods. It can either break you or it can make you,

depending on how you prepare or it. The Financial Freedom Foundation shows you

how to make money, even when there is high ination.

26




EXPOSED

Chapter 4: Summary

Problem: I you are a U.S. citizen with all o your wealth in dollar based assets, then your

real wealth is dropping as the dollar declines in relative value, and as domestic ination

increases, especially i you only use traditional US stock market and bond market

investment strategies. Granted, there might be short-term dollar rallies, as we had or

10 months in 2005, and or the 6 months rom August 2008 – Feb 2009. However, the

long-term trend is or a decidedly weaker dollar, based on current undamentals, and the

short-term rallies always give way to the underlying weak long term trend.

Solution: Now that you know the direction o the

economic wind that is blowing, the next step is learning

how to set your economic sails. As Jim Rohn said, “I you

learn to set a good sail, the wind that blows will take you

to the dreams you want, the income you want, and the

treasures o mind, purse, and soul you want.”

To know how to protect yoursel rom the weakening o the dollar, how to create

wealth no matter what happens to the stock market, and how to prosper in the ace o

ination, visit us at www.FinancialFreedomFoundation.org.

At The Financial Freedom Foundation.org we share with you, in a FREE REPORT,

the fnancial concepts and investment strategy necessary to create high double-digit

absolute returns in any economic scenario, regardless o the direction o the market

or the value o the dollar. Access the fnancial benefts o a Wharton MBA plus 10 yrs

I you nd this report

interesting, please Forward

it to a Friend

27




EXPOSED

experience in Non-Traditional Investments by joining our Mastermind Group at the

Financial Freedom Foundation.org.

Here’s is what comes with joining our Mastermind Group at The Financial Freedom

Foundation:

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Receive guidance on questions to ask and how to perorm proper due diligence.

28




EXPOSED

7. Step-by-Step guidance in how to do this, even i you have terrible credit and hardly

any seed capital to start with. Leverage Other People’s Money (OPM), with No Personal

Guarantee.

8. Receive an ingenious Personal Money Management System that provides or

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Get your FREE REPORT at: www.TheFinancial FreedomFoundation.org, then

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“Mastermind Group.”

29




EXPOSED

Appendix

Potential Worst Case Scenario

Quote rom Ludwig von Mises: “There is no means o avoiding the fnal collapse o

a boom brought about by credit expansion. The alternative is only whether the crisis

should come sooner as a result o a voluntary abandonment o urther credit expansion,

or later as a fnal and total catastrophe o the currency system involved.” In other words,

i something is not sustainable, it eventually stops.

Many countries have been devastated by debt crises, resulting in economic

catastrophes. The US Government could be driving our country down this path by

borrowing trillions o dollars rom oreign governments who do not have our best

interests at heart. This gives them control over us, i they choose to stop buying our

IOUs, or i they decide to suddenly sell a large percentage o the IOUs they already

own, either out o spite or out o necessity. What will happen i another $1 trillion o

mortgages blow up in 2010, or when $1 trillion o commercial mortgages come due in

2011, or i GE can’t refnance in 2012, or when China stops buying US treasuries? Here

is the url to a video by the National Ination Association that explores the potential

reaction to that very scenario: http://www.youtube.com/watch?v=2N8gJSMoOJc.

We hope that something like this never happens to the United States. For planning

purposes, it is important to consider the potential ramifcations o today’s economic

decisions. In the 16 years rom 1975 to 1991, Argentina’s government printed money

in order to pay or its debts. The eventual ination was so great that i it had happened

in America, Bill Gate’s ortune would be worth only 60 cents. In the 1990s, the Federal

30




EXPOSED

Government in Thailand had accumulated so much oreign debt that by 1997, the

government could no longer protect the value o its currency and within a ew months,

the currency lost 40% o its value, resulting in at 75% drop in the stock market and 1.5

million people lost their jobs, in a country o just 65 million people. In Zimbabwe, the

government printed money to pay its obligations which resulted in ination at a rate

that prices doubled every 1.3 days!

Articles to Read:

1. The Coming Decit Disaster

2. An Empire At Risk

This quote rom the ormer budget director o the CBO and ellow at the Manhattan

Institute, Mr. Holtz-Eakin, in his recent WSJ article titled “The Coming Defcit Disaster,”

sums it up pretty well:

“The planned defcits will have destructive consequences or both airness and economic

growth. Federal defcits will crowd out domestic investment in physical capital, human

capital, and technologies that increase potential GDP and the standard o living.

Financing defcits could crowd out exports and harm our international competitiveness,

as we can already see happening with the large borrowing we are doing rom

competitors like China. The time to worry about the defcit is not next year, but now.”

From Chuck Butler, President of EverBank World Markets,

“An increase in ederal debt can be fnanced in three ways: borrowing rom oreigners,

borrowing rom our own citizens or, through a roundabout process, printing money.

Let’s look at the prospects or each individually - and in combination.

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EXPOSED

The current account defcit - dollars that we orce-eed to the rest o the world and

that must then be invested - will be $400 billion or so this year. Assume, in a relatively

benign scenario, that all o this is directed by the recipients - China leads the list – to

purchases o United States debt. Never mind that this all-Treasuries allocation is no

sure thing: some countries may decide that purchasing American stocks, real estate

or entire companies makes more sense than soaking up dollar-denominated bonds.

Rumblings to that eect have recently increased.

Then take the second element o the scenario - borrowing rom our own citizens. Assume

that Americans save $500 billion, ar above what they’ve saved recently but perhaps

consistent with the changing national mood. Finally, assume that these citizens opt to put

all their savings into United States Treasuries (partly through intermediaries like banks).

Even with these heroic assumptions, the Treasury will be obliged to fnd another $900

billion to fnance the remainder o the $1.8 trillion o debt it is issuing. Washington’s

printing presses will need to work overtime. Slowing them down will require

extraordinary political will. With government expenditures now running 185 percent

o receipts, truly major changes in both taxes and outlays will be required. A revived

economy can’t come close to bridging that sort o gap.

The defcits, i unchecked, will ultimately lead the government to put the printing

presses in overdrive and we will attempt to inate our way out o debt. This will cause

the value o the US$ to drop. Buet recently wrote a piece with the ollowing line:

‘Unchecked carbon emissions will likely cause icebergs to melt. Unchecked greenback

emissions will certainly cause the purchasing power o currency to melt. The dollar’s

destiny lies with Congress ’ ”

traditional investment strategies- exposed !!

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