Good Article by Oliver Velez

Commentary by our very own, Joe Federhofer:

Yes,  Owen a good article from Oliver Velez about accumulating wealth over time. When you look at real numbers below you realize it is basic math that our government and many governments will have to go bankrupt or at least revalue that dollar which is happening as we speak.  Big money knows cash is trash and going into gold, silver, real-estate,  like farm land, and oil.

Naturally commodity plays like broken wing butterflys on gld and even buying gld have worked really well.

To be perfectly honest buying broken wing butterflies are boring but they work, LOL!   Other symbols, which I have done well with are fcx, and slv.   I have just bought on the dips and trail stop losses at about 25%.   I just buy more shares on the dips and set trailing stop losses.  The thing with commodities is they move a lot,  so you have to just believe in what you are doing and respect your stop losses.

To very briefly summarize the problem, the U.S. Treasury has moved its obligations “down the curve” – meaning most of its debts will come due in a very short amount of time. This reduces the carrying costs of our obligations, but leaves us vulnerable to disaster if our creditors decide not to “roll over” our obligations.

I estimate the Treasury will need to borrow at least $3 trillion in 2010 to cover our current deficit (which will likely be more than $1.5 trillion) and repay older debts coming due. In total, the Treasury must find a way to refinance more than half our total debt in the next four years – while at the same time fund record annual deficits that now exceed 10% of GDP.

I don’t believe these debts will be repaid or refinanced. In fact, I don’t believe it’s even remotely possible. Our largest creditor, China, buys around $600 billion in Treasury obligations each year. The rest of our creditors buy another $250 billion or so. Americans, in total, save about 5% of GDP – or around $500 billion. So assuming demand remains robust for our debt obligations and every penny of our domestic savings are invested in Treasuries, we could borrow up to around $1.4 trillion each year – at the very most. Currently, our annual deficits exceed this amount. Meanwhile, we’ve got to find a way to repay or refinance more than $4 trillion in the next three years. It can’t be done. And that’s why the Fed has bought more than $300 billion of Treasury securities in the past year.

Now, if inflation heats up (and it will as more and more of our debt is “monetized” by the Fed) what are the chances our creditors will either demand much higher interest rates (which we can’t afford) or simply abandon the Treasury market? Some people say there’s no chance our creditors will abandon us. Really? What does America export that they can’t live without? Hollywood movies?