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Steve's note: As you probably read in this morning's letter, my friend Porter Stansberry is at the center of a big controversy right now. It's a controversy he's nicknamed the "End of America." Over the next four days, he's going to explain the ideas behind this controversy... and how he reached them. Read on for the first installment...
Tuesday, December 14, 2010
I believe we are seeing the very early stages of a great monetary crisis that will, eventually, lead people (and then their politicians) to return to gold- and silver-backed currencies. – Porter Stansberry, May 4, 2006
Four years ago, we began warning people something was seriously wrong with our money – the mighty U.S. dollar.
The economy was enjoying a furious bull market. Everything – literally everything – was going up.
Near the peak in February 2007, investors were no longer requiring a higher return for taking more risk – a so-called "risk premium"...
Junk bonds were trading at nearly the same prices as triple-A credits. Garbage penny stocks were trading at blue-chip prices. Dividends had disappeared. So much money and credit had been created from thin air (subprime mortgages) and thrown into the market that prices had reached a point where, as careful analysts, we could find nothing safe to buy.
We were afraid of what would happen next. We knew the country would have to make a choice. Would we write down and write off the excesses of the greatest credit bubble in history? Would thousands of banks fail? Would millions of "investors" – fools, really – lose everything? Would the slate be wiped clean, allowing a recovery to occur?
Or would something far worse manifest?
Would politicians seeking power and wealth promise to bail out unwise corporations and reckless lenders? Would the full potential of our paper money system be revealed to the public? Would there be an all-out attempt to "paper over" the bad investments and debt-driven losses?
We always knew what would happen. Our democracy – the most powerful government in history – would surely choose to print. How did we know? Because that's what governments do... all of them... especially democracies. Their ability to print money is always too powerful a temptation to resist – to paper over... to create money from thin air... to lie, cheat, and steal from the citizens via inflation.
And now it's happening. We have proof.
Last month, some of the Fed's secrets were unearthed. Dozens of well-connected companies received billions in bailout money from the Fed – deals the central bank never disclosed to Congress or the press...
Remember when the government promised it would only rescue companies that posed a "systematic risk" to the banking system? It was a lie. Harley Davidson got $2.3 billion in Fed money. Caterpillar got almost a billion dollars. Even McDonald's got more than $200 million.
In all, the Fed printed up $3.3 trillion and doled it out to what seems like every big company on the planet with a lobbyist in Washington, including dozens of foreign companies with almost no U.S. employees.
Since then, the prices of gold and silver have rocketed 150% higher. If you took our advice and began to hoard gold and silver bullion, you've probably protected your net worth from the worst of the collapse of 2008 – at the very least.
If you're new to the story, don't worry.
The curtain is about to come up on the real show. Politicians (and the press) have largely supported the Fed's decision because in their eyes printing the money was better than falling into a massive recession or possible depression. And that's certainly true – in the short run.
In the long run, these decisions must lead to more printing and eventually the collapse of our currency.
Porter's been warning DailyWealth readers about the coming crisis for years. Find some of his must-read essays here: How to Protect Yourself from the End of America, The Madness of Barack Obama: Why Free Money Is Destroying America, Don't Fool Yourself: America Is "Now a Communist Nation", and A Run on the Dollar Starts Soon.
TRADERS TAKE NOTE: OIL JUST "BROKE OUT"
After spending more than a year "treading water," crude oil has broken out to the upside...
Back in December 2008, we used the little-known gold-to-oil ratio to pinpoint – almost to the day – crude oil's credit-crisis low. This ratio indicated oil was cheap... and set to surge as things went from "bad to less bad" for the beaten-down commodity.
As you can see from today's chart, a "bad to less bad" surge took oil from its low of around $35 to $80 per barrel in 10 months. It spent the next 13 months trading in a sideways pattern between $70 and $85. But in just the past few weeks, the U.S. government's huge "E-Z-Credit" program has sent oil to a fresh high around $90 per barrel.
End of America Series
Our friend and colleague Porter Stansberry is at the center of a big controversy right now. It's a controversy he's nicknamed the "End of America."
So we invited him and his colleague Braden Copeland to put together a special DailyWealth series to explain the ideas behind the controversy... and how he reached them.
Part III: How America Became a Communist Nation
Part IV: How to Protect Your Family and Wealth from the End of America
In The Daily Crux