By Anthony J. Tarquinto ——Bio and Archives--October 31, 2014
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“There are people in the world who don't like this. They don't like the idea that one country in the world can arbitrarily assign a zero rate of interest to money. Zero interest rates trivialize labor. They trivialize effort. They trivialize human contribution to things. It pillages the capital stock of countries. Where rates are zero, nobody has any incentive to save money, and the capital stock comes from savings, not from consumption. Consumption destroys the capital stock. The fraud and the deceit of reporting inflation at less than two percent when it's really at nine percent, it makes people want to spend money as opposed to save money. When you print infinite amounts of money and when you live on a finite planet with finite resources, the two don't mix. It's not sustainable and it doesn't look good for humanity.”Buyers of U.S. Treasuries are essentially funding a Ponzi scheme. In fiscal year 2012, the Treasury redeemed $6,804,956,000,000 in securities, but issued $7,924,651,000,000 worth, a net increase of $1,119,695,000,000 in debt. In 2013, the U.S. Treasury Department was indebted over $2.5 trillion to Social Security. So even if the checks go out, what arrives in the mailbox might not buy much. Serial deflator Argentina saw inflation at over 400% in the 1970's, and private analysts in Buenos Aires pegged it at 28% for 2013. Inflation in Venezuela is running at 63% this year, with a bolivar fetching around one hundred to the dollar on the black market. Don't think it can't happen here? “Simply going out and buying a U.S. Treasury is becoming a much more dangerous activity than it used to be,” says Russ Koesterich, Chief Investment Strategist at Blackrock, the world’s largest money manager. “Buying Treasuries is like picking up pennies in front of a steamroller,” says John Brynjolfsson of hedge fund Armored Wolf. The United States borrows over $4 billion per day by issuing these securities. At the close of 2014, the United States will have over $18 trillion in debt, a sum larger than the entire economy, and one that can “never be re-paid,” according to former presidential candidate Herman Cain, a onetime Chairman of the Federal Reserve Bank of Kansas City. British historian Niall Ferguson knows a thing or two about sovereign debt calamity: “This is how empires decline. It begins with a debt explosion. The idea that the U.S. is a 'safe haven' is nonsense. Its government debt is a safe haven the way Pearl Harbor was in 1941.” So if you have a few greenbacks left over from your last trip to America, cash them in right away. They're not going to be worth much in the near future. “In my view, the dollar is about to become dethroned as the world's de-facto currency,” says Canadian billionaire Ned Goodman. “In the 'thirties, everyone wanted U.S. dollars. Today, everyone wants to get rid of them.” The world may be waking up to this new economic reality. Share of global currency flows being stashed in U.S. Treasuries slid to just 14% in the first quarter of 2014, less than one-tenth its market share in late 2012 according to Stephanie Pomboy at research boutique Macro Mavens. With interest rates so low, “foreign creditors no longer have any reason to continue to plow money into our markets,” she says.
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Anthony J. Tarquinto is an independent financial adviser based in Aliso Viejo California. Anthony is the author of “The Real 40 Year-Old Virgin of Orange County.” (Xlibris 2010) which is available at Google Books.