1 - The Federal
Reserve is Buying 70% of U.S. Treasuries
Federal Reserve has been buying 70%
of all new U.S. treasury debt.
Up until this year, the U.S. has been
successful at exporting most of its inflation to the rest of the
world, which is hoarding huge amounts of U.S. dollar reserves due to
the U.S. dollar's status as the world's reserve currency.
In recent months, foreign central bank
purchases of U.S. treasuries have declined from 50% down to 30%, and
Federal Reserve purchases have increased from 10% up to 70%.
This means U.S. government deficit
spending is now directly leading to U.S. inflation that will destroy
the standard of living for all Americans.
2 - The
Private Sector Has Stopped Purchasing U.S. Treasuries
The U.S. private sector was previously a
buyer of 30% of U.S. government bonds sold.
Today, the U.S. private sector has
stopped buying U.S. treasuries and is dumping government debt. The
Pimco Total Return Fund was
recently the single largest private sector owner of U.S. government
bonds, but has just reduced its U.S. treasury holdings down to zero.
Although during the financial panic of
2008, investors purchased government bonds as a safe haven, during
all future panics we believe precious metals will be the new safe
3 - China
Moving Away from U.S. Dollar as Reserve Currency
The U.S. dollar became the world's
reserve currency because it was backed by gold and the
U.S. had the world's largest manufacturing base.
Today, the U.S. dollar is no longer
backed by gold and China has the world's largest manufacturing base.
There is no reason for the world to continue to transact products
and commodities in U.S. dollars, when most of everything the world
consumes is now produced in China.
China has been taking steps to position
the yuan to be the world's new reserve currency.
The People's Bank of China stated earlier this month, in a story
that went largely unreported by the mainstream media, that it would
respond to overseas demand for the yuan to be used as a reserve
currency and allow the yuan to flow back into China more easily.
China hopes to allow all exporters and
importers to settle their cross border transactions in yuan by the
end of 2011, as part of their plan to increase the yuan's
NIA believes if China really wants to
become the world's next superpower and see to it that the U.S.
simultaneously becomes the world's next Zimbabwe, all China
needs to do is use their $1.15 trillion in U.S. dollar reserves to
accumulate gold and use that gold to back the yuan.
4 - Japan to
Begin Dumping U.S. Treasuries
Japan is the second largest holder of
U.S. treasury securities with $885.9 billion in U.S. dollar
Although China has reduced their U.S.
treasury holdings for three straight months, Japan has increased
their U.S. treasury holdings seven months in a row. Japan is the
country that has been the most consistent at buying our debt for the
past year, but that is about the change.
Japan is likely going to have to spend
$300 billion over the next year to rebuild parts of their country
that were destroyed by the recent earthquake, tsunami, and nuclear
disaster, and NIA believes their U.S. dollar reserves will be the
most likely source of this funding.
This will come at the worst possible
time for the U.S., which needs Japan to increase their purchases of
U.S. treasuries in order to fund our record budget deficits.
5 - The Fed
Funds Rate Remains Near Zero
The Federal Reserve has held the
Fed Funds Rate at 0.00-0.25% since
December 16th, 2008, a period of over 27 months. This is
unprecedented and NIA believes the world is now flooded with excess
liquidity of U.S. dollars.
When the nuclear reactors in Japan began overheating two weeks ago
after their cooling systems failed due to a lack of electricity,
TEPCO was forced to open relief valves to release radioactive steam
into the air in order to avoid an explosion. The U.S. stock market
is currently acting as a relief valve for all of the excess
liquidity of U.S. dollars.
The U.S. economy for all intents and
purposes should currently be in a massive and extremely steep
recession, but because of the Fed's money printing, stock prices are
rising because people don't know what else to do with their dollars.
NIA believes gold, and especially silver, are much
better hedges against inflation than U.S. equities, which is why for
the past couple of years we have been predicting large declines in
both the Dow/Gold and Gold/Silver ratios. These two ratios have been
in free fall exactly like NIA projected.
The Dow/Gold ratio is the single most important chart all investors
need to closely follow, but way too few actually do. The Dow
Jones Industrial Average (DJIA)
itself is meaningless because it averages together the dollar based
movements of 30 U.S. stocks.
With just the DJIA, it is impossible to
determine whether stocks are rising due to improving fundamentals
and real growing investor demand, or if prices are rising simply
because the money supply is expanding.
The Dow/Gold ratio illustrates the cyclical nature of the battle
between paper assets like stocks and real hard assets like gold.
The Dow/Gold ratio trends upward when an
economy sees real economic growth and begins to trend downward when
the growth phase ends and everybody becomes concerned about
preserving wealth. With interest rates at 0%, the U.S. economy is on
life support and wealth preservation is the focus of most investors.
NIA believes the Dow/Gold ratio will
decline to 1 before the hyperinflationary crisis is over and until
the Dow/Gold ratio does decline to 1, investors should keep buying
Year-Over-Year CPI Growth Has Increased 92% in Three Months
In November of 2010, the Bureau of
Labor and Statistics (BLS)'s
consumer price index (CPI) grew by 1.1% over November of 2009.
In February of 2011, the BLS's CPI grew
by 2.11% over February of 2010, above the Fed's informal inflation
target of 1.5% to 2%. An increase in year-over-year CPI growth from
1.1% in November of last year to 2.11% in February of this year
means that the CPI's growth rate increased by approximately 92% over
a period of just three months.
Imagine if the year-over-year CPI growth
rate continues to increase by 92% every three months. In 9 to 12
months from now we could be looking at a price inflation rate of
Even if the BLS manages to artificially
hold the CPI down around 5% or 6%, NIA believes the real rate of
price inflation will still rise into the double-digits within the
7 - Mainstream
Media Denying Fed's Target Passed
You would think that year-over-year CPI
growth rising from 1.1% to 2.11% over a period of three months for
an increase of 92% would generate a lot of media attention,
especially considering that it has now surpassed the Fed's informal
inflation target of 1.5% to 2%.
Instead of acknowledging that inflation
is beginning to spiral out of control and encouraging Americans to
prepare for hyperinflation like NIA has been doing for years, the
media decided to conveniently change the way it defines the Fed's
The media is now claiming that the Fed's informal inflation target
of 1.5% to 2% is based off of year-over-year changes in the BLS's
core-CPI figures. Core-CPI,
as most of you already know, is a meaningless number that excludes
food and energy prices. Its sole purpose is to be used to mislead
the public in situations like this.
We guarantee that if core-CPI had just
surpassed 2% and the normal CPI was still below 2%, the media would
be focusing on the normal CPI number, claiming that it remains below
the Fed's target and therefore inflation is low and not a problem.
The fact of the matter is, food and energy are the two most
important things Americans need to live and survive.
If the BLS was going to exclude
something from the CPI, you would think they would exclude goods
that Americans don't consume on a daily basis. The BLS claims food
and energy prices are excluded because they are most volatile.
However, by excluding food and energy, core-CPI numbers are
primarily driven by rents.
Considering that we just came out of the
largest Real Estate bubble in world history, there is a glut of
homes available to rent on the market. NIA has been saying for years
that being a landlord will be the worst business to be in during
hyperinflation, because it will be impossible for landlords to
increase rents at the same rate as overall price inflation.
Food and energy prices will always
increase at a much faster rate than rents.
8 - Record
U.S. Budget Deficit in February of $222.5 Billion
The U.S. government just reported a
record budget deficit for the month of February of $222.5 billion.
February's budget deficit was more than
the entire fiscal year of 2007. In fact, February's deficit on an
annualized basis was $2.67 trillion.
NIA believes this is just a preview of
future annual budget deficits, and we will see annual budget
deficits surpass $2.67 trillion within the next several years.
9 - High
Budget Deficit as Percentage of Expenditures
The projected U.S. budget deficit for
fiscal year 2011 of $1.645 trillion is 43% of total projected
government expenditures in 2011 of $3.819 trillion.
That is almost exactly the same level of
Brazil's budget deficit as a percentage of expenditures right before
they experienced hyperinflation in 1993 and it is higher than
Bolivia's budget deficit as a percentage of expenditures right
before they experienced hyperinflation in 1985.
The only way a country can survive with
such a large deficit as a percentage of expenditures and not have
hyperinflation, is if foreigners are lending enough money to pay for
the bulk of their deficit spending.
Hyperinflation broke out in Brazil and
Bolivia when foreigners stopped lending and central banks began
monetizing the bulk of their deficit spending, and that is exactly
what is taking place today in the U.S.
10 - Obama
Lies About Foreign Policy
Obama campaigned as an anti-war President who would
get our troops out of Iraq.
NIA believes that many Libertarian
voters actually voted for Obama in 2008 over John McCain because
they felt Obama was more likely to end our wars that are adding
greatly to our budget deficits and making the U.S. a lot less safe
as a result.
Obama may have reduced troop levels in
Iraq, but he increased troops levels in Afghanistan, and is now
sending troops into Libya for no reason.
The U.S. is now beginning to occupy Libya, when Libya didn't do
anything to the U.S. and they are no threat to the U.S. Obama has
increased our overall overseas troop levels since becoming President
and the U.S. is now spending $1 trillion annually on military
expenses, which includes the costs to maintain over 700 military
bases in 135 countries around the world.
There is no way that we can continue on
with our overseas military presence without seeing hyperinflation.
11 - Obama
Changes Definition of Balanced Budget
In the White House's budget projections
for the next 10 years, they don't project that the U.S. will ever
come close to achieving a real balanced budget.
In fact, after projecting declining
budget deficits up until the year 2015 (NIA believes we are unlikely
to see any major dip in our budget deficits due to rising interest
payments on our national debt), the White House projects our budget
deficits to begin increasing again up until the year 2021.
Obama recently signed an executive order
to create the "National
Commission on Fiscal Responsibility and Reform", with a
"propose recommendations designed to
balance the budget, excluding interest payments on the debt, by
Obama is redefining a balanced budget to
exclude interest payments on our national debt, because he knows
interest payments are about to explode and it will be impossible to
truly balance the budget.
12 - U.S.
Faces Largest Ever Interest Payment Increases
With U.S. inflation beginning to spiral
out of control, NIA believes it is 100% guaranteed that we will soon
see a large spike in long-term bond yields.
Not only that, but within the next
couple of years, NIA believes the Federal Reserve will be forced to
raise the Fed Funds Rate in a last-ditch effort to prevent
When both short and long-term interest
rates start to rise, so will the interest payments on our national
With the public portion of our national
debt now exceeding $10 trillion, we could see interest payments on
our debt reach $500 billion within the next year or two, and over $1
trillion somewhere around mid-decade. When interest payments reach
$1 trillion, they will likely be around 30% to 40% of government tax
receipts, up from interest payments being only 9% of tax receipts
No country has ever seen interest
payments on their debt reach 40% of tax receipts without
hyperinflation occurring in the years to come.