S & P’s Chutzpah in Lowering Outlook: What’s It Mean to You?

By Lee Bellinger / November 12, 2013

Trying to figure out how the U.S. dollar’s swan song is going to play out is among the favorite parlor games among analysts these days. And the truth is, none of us really know!
But there are some tantalizing warnings out there for those with the courage to pay attention to the grim realities now unfolding.
The National Inflation Association recently pointed out that the Federal Reserve is buying a whopping 70% of U.S. government debt. This is the most inflationary thing a country can do. But the U.S. feels forced to fill the void left by waning foreign purchases of U.S. debt, which have fallen from 50% of all debt issuance to 30%.
So our government is essentially writing and cashing checks to itself.
Last Monday, even the politically compromised Standard and Poor’s credit rating service had no choice but to lower its long-term outlook for U.S. debt from “stable” to “negative.” Disturbingly, it still gave Uncle Sam a AAA credit rating, despite the fact that government finances are hanging by a thread and totally dependent on desperation-level money creation to stave off a major cash flow crisis.
This government-debt Ponzi scheme is many years in the making, and readers of my two subscription publications – Independent Living and Money, Metals, and Mining – are well aware of the problems brewing now, the coming storm, and how to protect their wealth from the impending collapse of the dollar.
An important note: S&P only downgraded its “outlook”, which means it may lower the U.S. AAA rating in the next two years if Congress doesn’t fix its problems. In other words, it’s just a warning!
There’s Something Fishy Going on When Government
Debt Can Maintain AAA Rating
It’s a shame S&P has dragged its feet for years to warn the average citizen of the dangers ahead. Why the lag? Chalk it up to another blatant example of crony capitalism. Should we trust the S&P’s ratings? Remember, during the subprime-mortgage market fiasco, S&P maintained AAA ratings on many mortgage-backed securities up until the day they imploded. Something doesn’t smell right.
Don’t Let Your Guard Down
Behind the curtain of the bond and stock market circus and government newspeak, the smart money globally is shunning U.S. paper, seeing the inflationary destruction ahead.
I hope you’ve been taking to heart the insights we’ve issued for the past two years – long before the S&P’s revised outlook – and are using them to fine tune your own contingency plans. But so many others have issued dire warnings in recent weeks and months:
    • Warren Buffet: “I do not like short-term bonds, and I do not like long-term bonds. And if you push me, I’m sure I don’t like intermediate-term bonds either. I just think it’s a terrible mistake to buy into fixed-dollar investments at these kinds of rates.”
    • Jim Rogers: “Bonds are making a top. They’ll be in a bear market soon.
    • Bill Gross: Both the world’s top bond fund manager and manager of the world’s largest bond fund, Gross dumped ALL U.S. government debt from his funds’ holdings. He diversified his Total Return fund (PTTDX) into corporate and foreign bonds as well as bond alternatives such as convertibles and preferred equity shares.
Dollar Crash
  • Robert Zoellick: The World Bank President said last November that gold has become the “yellow elephant in the room.”
The implications for your future purchasing power are dire…
  • China and four other leading high-growth economies, the so-called BRICS economies (Brazil, Russia, India, China, and South Africa), have taken landmark steps toward lowering the importance of the dollar in international financial transactions by moving towards a multi-currency reserve and trading system.
  • It’s highly likely that Japan, one of the largest holders of U.S. Treasuries ($885.9 billion worth) will sell some to fund the rebuilding of its disaster-ravaged economy.
  • China, the biggest buyer of U.S. Treasury securities, trimmed its holdings for a fourth straight month in February.
Good news for sound money advocates and gold and precious metals investments:
  • In March, the Utah state legislature passed the largely symbolic “Utah Legal Tender Act,” making Utah the first state in recent times to accept gold and silver coins as legal tender. Other states are considering similar legislation in response to the Federal Reserve’s dangerous monetary policy.
  • The UTIMCO endowment, which oversees funds held by the University of Texas System and Texas A&M University exchanged fiat and gold paper investments and took delivery of 6,643 physical gold bars valued at nearly $1 billion. Dallas hedge-fund manager J. Kyle Bass, who helped advise UTIMCO says, “Central banks are printing more money than they ever have, so what’s the value of money in terms of purchases of goods and services. I look at gold as just another currency that they can’t print any more of.”
  • Even establishmentarian banks are acknowledging the dollar is emerging as a solid alternative to the dollar. In early February J.P. Morgan bank quietly announced it would accept gold as collateral for loans.
  • In November, ICE Futures Europe (Intercontinental Exchanges, Inc.) began to accept gold bullion as initial margin for crude oil and natural gas futures (a big step given that global energy prices have been almost exclusively denominated in dollars).
  • The Wall Street Journal recently noted another sign that the greenback is rapidly losing its credibility: Stock exchanges in Chicago, New York, and Europe have started accepting gold for some trades.
  • Central banks worldwide became net buyers of gold starting in 2009, after more than two decades as net sellers.
Protect yourself from the toxic dollar with a safe-haven portfolio for inflationary times. It should contain a multitude of assets such as precious metals, commodity-related stocks, emerging markets stocks, dividend-paying stocks, and alternative cash cushions found in foreign currencies.