Tuesday, March 15, 2011
And the Dominoes keep falling...
Just like how nobody in the mainstream media was calling for the collapse of Egypt's government a few months ago, almost nobody in the media believes a collapse of the U.S. dollar could possibly take place anytime soon. The Federal Reserve can deny all it wants that the U.S. is experiencing inflation, but with the cost to print a single U.S. dollar paper note rising by 50% since 2008, massive inflation is here right under Federal Reserve Chairman Ben Bernanke's nose. Every day that goes by, China is quietly implementing more and more steps that expand the yuan's use in cross border trade, in order to position the yuan as the world's next reserve currency.
Few Americans are preparing for hyperinflation. If the dollar collapsed today, 90% of Americans won't have the means to put food on the table or put fuel in their cars. During the upcoming hyperinflationary crisis, food stamps will no longer have any value at all and all U.S. entitlement programs (Welfare) will come to a complete halt. Americans will take to the streets like the world has never seen before.
The biggest question I have is, "will the U.S. government resort to firing at its own citizens, if major riots take place across America" As the price of oil rose by a few dollars per barrel in Saudi Arabia, police in Saudi shot and wounded three protesters. This shows just how nervous the world's financial markets have become in recent weeks. The fact that the Dow Jones has declined significantly in recent days means that QE3 (Quantitative Easing), which means printing more money to "ease" the economy, might happen any day.
The other big question I have is if in the unlikely event there is no QE3, who will fill in for the artificial buying demand currently coming from the Federal Reserve. After all, with no QE3, the Federal Reserve will go from buying 70% of treasury bonds to being a seller of U.S. treasuries. I am100% sure that foreign central banks aren't itching to jump back in to fill the hole. While in the past, the private companies may have picked up the slack, I believe individual investors won't jump into government bonds, especially with bond king Bill Gross reducing the government bond holdings in his Pimco Total Return Fund down to zero. The bottom line is, no QE3 means interest rates will fly sky high and destroy the phony so-called "economic recovery".
From April to August of 2010, the last time the Federal Reserve allowed its balance sheet to shrink, the Dow Jones fell by over 1,000 points. If Bernanke doesn't soon begin to leak out the strong likelihood of QE3, we could see the stock market decline by 1,000 points or more, which will force Bernanke into launching QE3. If we see a major sell off in stocks, Precious metals such as gold and silver will rise along with the Dow Jones falling. I project the Dow Jones gold ratio to decline to 6.5 in 2011. This means even if the Dow Jones fell to below 11,000, Gold is likely to rise to around $1,600 to $1,700 per ounce this year, with silver soaring to around $42 to $44 per ounce.
Invest in something of worth!