National Inflation Association reports........
1) With Republicans taking over the House, is there any chance of the Republicans drastically cutting spending to avoid a currency crisis?
No, there is zero chance of the Republicans cutting spending in any meaningful way. We will have exploding budget deficits in the years ahead. Republicans always talk like Libertarians but act like Democrats once in office. Bush expanded the government and raised spending more than any previous President in history. Bush destroyed the name of the free market so now the average American thinks more government is the solution and has become dependent on entitlement programs. The only way government spending cuts could make enough of a difference to prevent a currency crisis is if we cut unemployment benefits, food stamps, social security, medicare, medicaid, etc. None of this is going to happen until we do have a currency crisis and the government is forced to end these programs.
2) During a hyperinflation event, in retrospect, how much purchasing power will 35 to 40 ounces of silver have regarding commodities and assets?
We expect silver to gain about 3 1/2 times in purchasing power in terms of gold and oil. However, we expect many agricultural commodities to rise in price faster than gold and oil. Therefore, in terms of silver, we conservatively expect silver's purchasing power for food to approximately double. Therefore, if it costs $150 per week or 6 ounces of silver to feed your family today, we expect it to cost 3 ounces of silver per week to feed your family in the future.
In terms of Real Estate, the median U.S. home costs 6,550 ounces of silver today. We expect to be able to buy a median U.S. home in the future for below 1,000 ounces of silver and possibly as low as 500 ounces of silver.
To put it into perspective, if you stopped feeding your family today and saved all of that money, it would probably take 21 years of you saving that money to be able to pay for your house at its current price.
In the future, if you stopped feeding your family and saved all that money for just 3.2 years, that money would be enough to buy your house.
The point we are trying to make is, the cost of feeding yourself is about to rise dramatically compared to the cost of putting a roof over your head. No matter what, the best way to survive this upcoming crisis is by accumulating as much silver today as possible.
3) Some writers have included the Federal Government's unfunded liabilities in calculating the total U.S. debt. These unfunded liabilities are not debts at this time, but are just future estimates. I believe that they should not be included because they are distorting present reality. Am I correct?
The Federal Government's unfunded liabilities are very real because Americans getting ready to retire are very much depending on Social Security, Medicare, and Medicaid, just to survive. For 2/3 of Americans getting ready to retire, Social Security will be more than 50% of their income and for 22% of upcoming retirees, Social Security will be their only income.
NIA believes that not only should unfunded liabilities be included when we calculate our country's total debts, but increases in our unfunded liabilities should be included in our budget deficit. While our fiscal year 2010 cash budget deficit may have been $1.3 trillion, once you include increases in our unfunded liabilities, our real 2010 budget deficit was actually over $4 trillion.
All U.S. publicly traded corporations must include increases in their liabilities when calculating their net losses, so why shouldn't the U.S. government as well? The government only follows its own rules, when it suits them.
The truth is, if the U.S. wants to prevent hyperinflation and restore confidence in the U.S. dollar, it will have to default on its entitlement programs like Social Security, Medicare, and Medicaid. But, we all know the government will simply print the money to pay these benefits because if it decided to default on them, Americans will march to Washington with pitchforks and there will be nationwide rioting, looting, and civil unrest that our nation will never be able to recover from.
4) My husband is 57 and has been working at ATT for 35 years. He currently makes $32 per hour and will receive a $400k lump sum for retirement. We can only buy $30,000 in gold and silver now but could buy more with the retirement money. Should he retire now or keep his job?
He should retire now and use the money to buy gold, silver, and possibly gold and silver mining stocks. The longer he waits to retire, the more purchasing power his retirement money will lose in the hands of ATT.
$400k invested today into silver might actually have the purchasing power of $1.6 million 5 years from now. However, if he waits 5 years to retire, there is a chance that $400k will only have $100k in purchasing power.
$1.6 million in purchasing power will be more than enough for him to remain retired for the rest of his life. If he keeps working and doesn't buy more gold and silver until it is too late, there is a chance he will never be able to retire.
5) Do you have any suggestions for a small business owner to prepare to survive hyperinflation?
Without knowing the type of business you are in, you should try to get your expenses down as low as possible, as soon as possible. Imagine today what would happen if your revenues declined by 50% instantaneously. Would your business be able to survive? It is likely that the majority of American business owners will see a 50% or more decline in their revenues this decade, when priced in terms of real money (gold).
If you are in the restaurant business or a type of business that relies on the purchasing of a commodity, your costs are about to rise dramatically but you will find it very difficult if not impossible to pass these costs on to your customers. Therefore, try to factor in not just a 50% decline in your real revenues, but a 50% decline in your profit margins as well.
Start cutting back on your number of employees right away and give each of the employees that you keep more responsibilities. Explain to them that if the business is going to survive hyperinflation, it is going to be a team effort. Everybody is going to have to work a lot harder and give extra effort in order to survive hyperinflation.
6) Is there any reason not to take advantage of a 401k where your employer matches every dollar you put in, meaning you are receiving an automatic 100% return? What if I kept the money in a safe fixed rate of return fund?
If the price of gold quadruples over the next few years (which NIA believes is very possible), it will mean the U.S. dollar has declined by 75% in terms of real money. Even if your employer matches your 401k contributions by 100%, your money will still have lost 50% of its purchasing power overall in terms of gold.
Therefore, it is probably not worth contributing to your 401k even with your employer matching your contributions. If we experience hyperinflation before you are able to withdraw your 401k money, your employer's matches won't matter at all as you will be left with nothing.
In our opinion, you will be much better off buying some gold every month, or if your stomach can handle some volatility and you want to substantially increase your purchasing power - silver. One thing you should consider (if you already have a lot of money in your 401k) is borrowing against it at a fixed interest rate and using that money to accumulate gold and silver.
7) Just prior to the dollar collapsing, with hyperinflation in full swing and everyone in a mad rally out of the dollar and into gold/silver, who would be buying gold or silver at these new, enormous and unprecedented levels?
All Americans will be buying gold and silver with their dollars. The average American currently thinks gold is expensive at $1,350 per ounce and they are more likely to be a seller of gold at this time. As crazy as it sounds, when gold hits $5,000 or $10,000 per ounce, the average American's mindset will change and they will desperately want to own gold no matter what price it is at.
The world is currently flooded with dollars and for the most part these dollars are being hoarded. When Americans wake up to how rapidly the Federal Reserve is expanding the money supply and to the monetization of our exploding budget deficits that is ahead, nobody in their right mind is going to want to own dollars.
No American is going to want to be the last American out of the dollar. Americans who get out of the dollar and into precious metals the soonest will keep the most of their purchasing power. Those who wait the longest will see their savings completely wiped out.
8) You say that gold should make up 25% of world financial assets. Could you please explain how this should be, not just in history but today?
From 1921 to 1981, gold and gold mining shares made up 25% of the world's financial assets and today they make up less than 1%. We currently live in a fiat world gone insane. Gold is real money, but the world has been brainwashed into believing pieces of paper backed by nothing are money.
When the world wakes up and realizes how fast fiat currencies are being debased, the world will lose trust in fiat currencies and will demand sound money. Gold would have to rise to $31,000 per ounce for gold assets to make up 25% of the world's financial assets and $10,000 if non-gold assets fell by 2/3 in value.
Gold has been recognized as real money for thousands of years. These past few decades have been the exception. All central banks are battling to devalue their currencies. The current fiat currency experiment is going to end in a complete disaster. Bernanke is going to create quantitative easing all the way to hyperinflation.
9) Wouldn't the Federal Reserve be able to curb hyperinflation by raising interest rates?
The Federal Reserve has held interest rates near 0% for two years. NIA estimates the real rate of U.S. price inflation to currently be around 5%. In order for the Federal Reserve to stop price inflation it would need to immediately raise interest rates above 5%, which would destroy our so-called "economic recovery" and send the U.S. economy into the next Great Depression.
If the Fed slowly raises rates to 5%, by the time they get there we are sure real price inflation in the U.S. will be in the double-digits. If we saw double-digit interest rates, just the interest payments on our national debt would immediately explode to over $1 trillion per year and we will have multi-trillion dollar budget deficits.
Because of the size and scope of our national debt, raising interest rates to a level that is higher than the real rate of price inflation will be nearly impossible, unless it is done now. We expect interest rates to remain negative in real terms until the U.S. dollar is worthless.
10) Ever since the Fed announced QE2, the U.S. dollar has rallied. Why is this? Could Europe's banking system be collapsing again, which would send money into the dollar?
Investors sold off the U.S. dollar in the months leading up to the Fed's announcement because they knew QE2 was coming. NIA was the first to predict QE2 back in July, before the market began to price it in. NIA members could have made a lot of money by positioning themselves properly for QE2 before it leaked out in the media that QE2 was coming.
Interest rates have been near 0% for nearly two years so there is already a ton of excess liquidity out there. This excess liquidity drove commodity, precious metal and stock prices up in anticipation of the Fed's announcement. Because the announced QE2 was about what people were expecting, the U.S. dollar was overdue for a small short-term bounce.
Europe's banking system has been collapsing for years. Just because the media chose to stop focusing on Europe for a while and is now focusing on Europe again, doesn't mean things are all of the sudden getting worse in Europe. All it means is Wall Street has finished taking their positions so now they have their friends in the media focus on whatever will help their short-term trades become profitable.
Europe at least has been implementing tough austerity measures while the U.S. continues to print money and tries to spend its way out of the crisis. The fundamentals for the Euro have been slightly improving vs. the U.S. dollar and we anticipate the Euro will be higher vs. the U.S. dollar one year from now, compared to where it is now. However, both the Euro and the U.S. dollar are miserable currencies. They will both continue to decline in terms of gold and silver, despite the short-term noise and volatility.
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