Gettin Out Of Dodge : The Implications Of The Recently Released Fed Minutes
The optimism I forced myself to have is completely gone after reading over the FED minutes today. I'm currently living in Australia and know will look into becoming a citizen, if dual citizenship is an options. There is only one outcome I can rationalize now, and that of course is hyperinflation! I hope I am dead wrong but even an 10 fold increase in prices within the next 5 years is a best case scenario. Let me briefly mention the troubling comments in the minutes along with all our other problems.
1) The Fed initially agreed to purchase 300 Billion of Treasuries in Feb then hinted that it will not. but yesterday they announced they will be purchasing 1.8 trillion of government paper which will be comprisd of agency debt, mortgage back securities and Treasuries (most likely 2 or 3 times the original 300 billion dollar announcement).
1) The Monetary base, M2, MZM & M3 are all up well over 200% or more in the last 8 to 9 years.
2) Unfunded liabilities on our 12 trillion public debt (which is determined by the interest rate on the 30-year for the most part) will increase to at least 10% (optimistically speaking) in 2010 or 2011. This means 1.2 trillion in interest payments to service our debt. Not to mention the 956 billlion in unfunded healthcare liabilities in 2010, rising to 1.2 in 2012-2013 and doubling to 2 trillion by 2018 (Social Security, Medicare , Medicaid).
3) The Massive deficit spending we will soon be embarking on - which will be financed with inflationary currnecy as this depression will continue to see increases in unemployment and tax loss carryforwards, so tax revenue will be far below all the estimates.
4) China and Brazil have began displacing the USD as the reserve currency as they have publicly agreed to use their respective currency in foreign trade.
5) The excess reserves in the system, currently over 900 billion will be turned in 9 trillion creating 8.1 trillion via fractional reserve banking. This will be in order to cover defaults on loans and remain solvent.
6) We still have a wave of defualts in the residential housing sector, and will likely see defaults increase by hundreds or thounsands of % barring government help. Not to mention the bigger shoe, the commercial real estate bubble burst. The Fed has bailed out everyone else so this will likely happen in this industry as well.
7) Past hyperinflations beginning with the Weimar Republic to present day had one thing in common, They had an average debt to GDP of 54%. The U.S will be at 46% by the end of 2009.
Dump your stocks that get more than a small % of revenue from the U.S, buy gold and silver or any other real assets.