Marvelous Essay

This is by Bill Bonner and I think it hits the nail on the head.
http://dailyreckoning.com/risky-investm ... of-conmen/

Sooooo True franco ! Good post !

Great post! The artificially low interest rates that the Fed has fabricated and foisted upon us will eventually come to haunt every honest and hard working American. The article is spot on. The looming T-bond crash will come hard and be ugly. The birth pangs will come when interest rates begin to rise again. Can you imagine how much destruction will come to the net present value of a 30 year T-Bond paying interest at only about 2.5% (give or take) when suddenly 30 year T-Bonds paying 8% or higher interest are available for purchase. You will have to offer 3 (or more) of the low interest rate bonds at the current price of one higher interest rate bond in order to get anyone to even raise an eyebrow. The bondholders of today are sitting on economic time bombs of massive wealth destruction.

I got rid of all my bonds rather than risk seeing them become worthless.

Outstanding find my friend. Good post Richard.

Good article as far as it goes, but it stop just as it should be telling us.... what does a person do? If you manage to put 3% of your income into "savings", where should it go? Or... should you spend all of your money and save nothing?

If you hold low interest rate T-bonds to full maturity you will technically not lose anything. They will fully deliver their promised interest to you over their lifetime (as little as that will be) and they will also return all of your principal as well. In a rising interest rate scenario it is only if/when you decide to sell them early that you will suffer due to no one in the bond market having any desire to buy them from you for anywhere near the value that you initially paid for them. For the case of a 30 year bond the reason for this is that over its lifetime a 30 year bond paying at 8% interest will ultimately return something on the order of 3 times more money than a similar 30 year bond which is only paying 2.5% interest.

The catch 22 is that those holding the 2.5% long term bonds will see that they are not going to make anything near what the similar term 8% bonds will, so they will want out.

To find out how much you can sell a bond for go to the website I've linked below.

For the example of a 30 year bond paying 2.5% interest you will need to put into this calculator a maturity date of April 2042, a coupon rate of 2.5%, and a price of 100. On the top bar you will then see that your 2.5% bond amazingly "yields" an honest 2.5% annual return on your investment.

Then slide the "yield" bar to 8% (to represent the coupon rate of an 8% yielding 30 year bond) and watch your initial principal value of 100 (dollars returned on the dollar initially paid) vanish in "price". "Price" is the value (as a percentage of what you initially paid) that someone will actually be willing to offer you for your 30 year bond if you decide to sell it and go elsewhere with your money rather than hold it to maturity.

Here is the link:

http://www.smartmoney.com/calculator/bonds/bonds-calculator--bonds--bond-funds-1309988621833/

You will be able to recover only about $37 for every $100 you initially paid for a 2.5% coupon bond in an 8% yield environment. And if interest skyrockets to 15% (as it did in the late 70's to early 80's as I recall), you will only be able to sell your 2.5% interest (coupon) bond for a bit less than $18 for every $100 that you initially paid for it. That is real wealth destruction.

That is exactly the scenario I was anticipating.

Seems that there are so many experts out there after the fact, wonder where they all were before hand & why the one's that were trying to warn were ignored. Also why so many resist any type of restraint that could be put on to possibly prevent the same thing? Is it similar to the gas price crap that keeps repeating itself but never getting back to where it was? As long as someone or some % always makes $ & stays protected & catered to we are doomed to repeat the cycle. No one is happy with a slow steady return they want it fast & large & they want it to keep on coming.

I just read where the US Dollar has lost 83% of its purchasing power (its only measure of value with any meaning) since 1970. The Dollar is not money, but rather it is a "note" payable to the holder (look at one and see where it tells you straight up what it is, and that it is in fact a "Federal Reserve Note"). Notes are a form of bonds. That the Dollars purchasing power has vanished by 83% since 1970 can only mean that its note "coupon" is not high enough to account for the real average interest rate from 1970 to 2012. That is fully understandable in that its coupon rate is sadly "zero". This Federal Reserve scam has evaporated the wealth of our nation.

With this as a background I can attempt to speculatively answer Freddy's question posed above (with the full requisite disclaimer that I am not a registered financial advisor, so my speculation is merely my own, and it is fully biased, and it should be taken with far less than a grain of salt, etc...).

I merely speculate that gold and silver will ultimately prove over time to be true stores of value (I.E, real money, and not merely "notes" backed by nothing and paying zero coupon).

I assume however that Ben Bernanke is a registered financial advisor, and just recently he point blank told Ron Paul that Gold is not money, so as you can see, financial advisors have a completely different perspective here.

Did I mention that we abandoned the gold standard in 1971. Funny how that has resulted in an 83% devaluation of our US Dollar currency.

samhill wrote:Seems that there are so many experts out there after the fact, wonder where they all were before hand & why the one's that were trying to warn were ignored. Also why so many resist any type of restraint that could be put on to possibly prevent the same thing? Is it similar to the gas price crap that keeps repeating itself but never getting back to where it was? As long as someone or some % always makes $ & stays protected & catered to we are doomed to repeat the cycle. No one is happy with a slow steady return they want it fast & large & they want it to keep on coming.

We are only doomed to endlessly "repeat the cycle" (of doom) if we endlessly vote for the establishments chosen Democrat and Republican candidates and if we fail to end the charter of the Federal Reserve banking system, and also to repeal the 16th Amendment.

I propose a hypothetical test:

If I were to have placed $1,000,000 worth of paper US FRN's (Federal Reserve Notes) into the hermetically sealed vault of one ship that sank in about 1913, and I also placed 50,000 ounces of gold into the vault of another ship which sank at about that time, which of these two vaults contents alone would inspire you to spend many millions of current FRN's in an effort to recover the assets within the vault?

PS: In 1913 these 50,000 ounces of gold and $1,000,000 of paper notes were completely equivalent in purchasing power.

I'd go for the GOLD !!!!

Hypothetically speaking if the U.S. Dollar of 1913 were still legally backed by gold they would still be the same value. If the current dollar were to suddenly backed by gold you would be lucky to get a piece of microscopic gold dust. The same is true for most if not all countries, it's not worth the paper it's printed on but that still doesn't stop everyone from wanting it. It works real well until the merry-go-round stops.