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Friday, November 5, 2010
My boss, Porter Stansberry, is always getting heat for his "crazy" claims and predictions.
His latest one might be his "craziest" yet...
In late 2006, Porter predicted GM would go bankrupt. He looked at GM's debts and determined there was no way the automaker could avoid bankruptcy. He received stacks of hate mail calling him crazy and anti-American.
In 2007, Porter came out with another "crazy" prediction... He told a packed investment conference that government agencies Fannie Mae and Freddie Mac would go bankrupt. Porter claimed a small decrease in home prices could crush the leveraged home lenders.
"Fannie Mae go bankrupt? It could never happen," thought the audience.
You know how the stories of Fannie, Freddie, and GM played out. All three were disasters. All three went bankrupt.
I respect Porter for doing his research and not being afraid to take an unpopular stance... no matter what people will say about it. Which is why it's worth noting Porter's latest claim.
He says the U.S. isn't just headed for a currency crisis... we're in one right now.
In a recent conference call with subscribers of Off the Record, Porter said this:
Currently, government spending in the United States, just federal spending, is 44% of GDP, so that would put total government spending at excess of 50% of GDP, which had never happened outside of World War II. On the revenue side, federal government is 32% of GDP. So it's not even a misnomer anymore to say that we're living in a socialist state.
Another way of seeing these numbers is to understand that right now, 44 million people are on food stamps. Twenty million people are employed either by the state governments or by the federal governments. Assuming there aren't a lot of state employees that are on food stamps – and there aren't, because government employees actually get paid better than private employees – more than 60 million people in the United States depend on the state for either their income or their food.
There are only about 81 million households in the United States. So something on the order of two-thirds of all the families in the United States depend on the government either for their food or for their income... and that government is quite clearly broke.
The total government debt in the United States per taxpayer is now in excess of $122,000. You have to understand that's per taxpayer. But about half of those people actually don't pay very much money at all in taxes. So the real burden on the productive citizen is enormous.
And one final point I want to make about the sustainability of these debts: Not only are the debts impossible to repay, they're far too large. There's no way we could ever begin to repay them. But we're very close to approaching a point in time where they can no longer be financed.
Porter goes on to note how these debts are crushing the value of the dollar...
I don't think we're doing our readers any favors when we say a currency crisis "might occur"... or we try to use language that is any less certain than we understand. A currency crisis is under way.
It's not a matter of if we'll have one or not. We're in the midst of one. You don't see the price of silver go from $2.50 an ounce to $25 an ounce in a 10-year period unless something horrible has gone wrong with your monetary system. There's no other explanation for why you've seen not only gold and silver, but oil and corn and cotton and coal – everything that that's useful that's priced in dollars – going straight up.
That's not because there's been a sudden drought of silver mines. It's because the paper that you're denominating these assets in is collapsing.
Just this week, silver skyrocketed to a 30-year high... and gold is now closing in on $1,400 an ounce. The dollar is at its lowest low in more than a year. This is the market telling us that "crazy" is here. Despite these big price rises, Porter says it's not too late to protect your wealth with gold and silver, if you don't own any already.
What sounds crazy to most investors is often what works. You don't make money by sticking your head in the sand and listening to conventional wisdom from Wall Street and Washington D.C.
Porter has a great history of being right on these things... and as the soaring price of gold and silver tell us, he's right on this.
Two weeks ago, U.S. Treasury Secretary Tim Geithner said the government would not devalue the dollar. But Steve doesn't buy it. "'We will not devalue' is the equivalent of your 7-year-old child hustling into the room and announcing, 'There's no need to count the number of cookies in the cookie jar!'" Read Steve's take here: The Scariest Political Statement Yet.
SILVER HITS 30-YEAR HIGH
In early 1980, the United States hockey team pulled off one of the greatest sports victories in history. It defeated the overwhelmingly favored Soviet team in a medal round of the Winter Olympics. They called it the "Miracle on Ice."
We share this slice of history because early 1980 was also the last time the price of silver was as high as it is now.
Silver is an odd duck in the asset world. It has a "real money" allure like gold does... Yet it's heavily used in industry, so it can rise and fall with economic activity as well. (We've covered the virtues of owning the stuff many times in DailyWealth.)
In The Daily Crux