Important Breaking Inflation News



The Federal Reserve along with the European Central Bank, Bank of Canada, Bank of Japan, Bank of England, and the Swiss National Bank are all lowering their U.S. dollar swap rates by 50 basis points! This is going to create massive worldwide monetary inflation and flood the world with U.S. dollars!

 The Fed claims that these coordinated actions will enhance their capacity to provide liquidity support to the global financial system in order to "ease strains in financial markets and thereby mitigate the effects of such strains on the supply of credit to households and businesses and so help foster economic activity."

 It was also announced this morning that arrangements have been made to establish temporary bilateral liquidity swap arrangements so that liquidity can be provided in each jurisdiction in any of their currencies should market conditions so warrant. Although the Fed said, "there is no need to offer liquidity in non-domestic currencies other than the U.S. dollar" at this time, the stage is now set to create massive worldwide monetary inflation in other fiat currencies as well. The whole entire global fiat currency system could soon come to an end. The only solution to the upcoming hyperinflationary crisis will be a global digital gold backed currency.

 NIA believes China will soon announce that they have dramatically increased their gold holdings to backup their rapidly growing foreign currency reserves, which have now reached $3.2 trillion. China's central bank just announced this morning that they are lowering their reserve requirement ratio by 50 basis points to 21% from 21.5%!

 NIA considers precious metal stocks to be extremely undervalued at this time and we believe they are set to outperform gains in gold and silver in the months ahead. We believe silver stocks have the most upside potential and that silver exploration stocks, although the most risky, could be the biggest silver gainers. NIA's latest stock suggestion Mines Management Inc. (MGN), at its current price of $2.10, has the lowest valuation out of all silver exploration stocks we are aware of with an enterprise value of only $39.89 million, which equals a valuation of only $0.173 per ounce of their estimated 230 million ounce silver resource base.

 NIA also sees huge upside potential in alternative energy stocks and sees the biggest potential in ocean energy, because the ocean makes up 71% of the earth's surface and the ocean energy industry is still in its infancy compared to solar and wind. NIA's second to latest stock suggestion Ocean Power Technologies Inc. (OPTT) has established itself as the leader in ocean energy with 41 issued U.S. patents and major partners around the world including the U.S. Navy, the U.S. Department of Energy, Lockheed Martin, Mitsui Engineering in Japan, Iberdrola in Spain, and Leighton Contractors in Australia! OPTT is currently trading for well below its net cash position of $4.10 per share.

 Disclaimer: NIA owns 108,200 shares of OPTT that it purchased at an average price of $3.1079 per share. NIA intends to sell its shares of OPTT in the future and can sell them at any time. NIA also reserves the right to accumulate additional shares of OPTT at any time.

 NIA is not an investment advisor. This email is not a solicitation or recommendation to buy, sell, or hold securities. Never make investment decisions based on anything NIA says. This email is meant for informational and educational purposes only and does not provide investment advice. NIA's co-founders have previously disseminated information about OPTT in other media outlets.

 Additional legal disclaimer information: http://inflation.us/legaldisclaimer.html

Posted via email from cash-gifts-gifting-generosity's posterous

Agriculture Update



On October 30th, 2009, NIA released an article 'U.S. Inflation to Appear Next in Food and Agriculture' in which we said, "A massive rise in agriculture prices is just around the corner."

 

Since then, as a result of the Federal Reserve's money printing, agricultural commodities made their largest ever short-term gain. After dipping from their 2011 highs, we believe agricultural commodities are likely to soon resume their rally as the Fed prepares QE3. From their lows in 2010, we look for agricultural commodities to make the same percentage gains seen from their lows to highs in the 1970s by the year 2015, at the latest. We look for agricultural commodities to reach their 1970s highs adjusted for the real rate of price inflation by year 2020.

 

Here are the percentage gains that agricultural commodities made from their lows in 2010 to their highs in 2011:

 

Cotton +241%, Sugar +164%, Corn +146%, Coffee +142%, Wheat +110%, Orange Juice +63%, Soybeans +57%, Cocoa +49%. Average: +121.5%

 

After reaching their highs earlier this year, here are the percentages that each agricultural commodity has dipped based on their current prices:

 

Cotton -60%, Cocoa -37%, Sugar -35%, Wheat -33%, Corn -25%, Coffee -23% Soybeans -21%, Orange Juice -13%. Average: -31%

 

After dipping, here are their current gains from their lows in 2010 to their current prices:

 

Coffee +86%, Corn +84%, Sugar +71%, Orange Juice +43%, Wheat +40%, Cotton +37%, Soybeans +24%, Cocoa -6%. Average +47%

 

Here are the gains these agricultural commodities made from their lows to their highs during the 1970s inflation crisis:

 

Sugar +2,480%, Cocoa +1,095%, Orange Juice +588%, Coffee +525%, Soybeans +435%, Wheat +404%, Cotton +311%, Corn +265%. Average +763%

 

Gains these agricultural commodities need to make from current prices to reach the same percentage gains from the 1970s, beginning from their lows in 2010:

 

Sugar +1,412%, Cocoa +1,169%, Orange Juice +384%, Soybeans +330%, Wheat +260%, Coffee +236%, Cotton +200%, Corn +98%. Average +511%

 

Gains agricultural commodities need to make from current prices to reach their 1970s highs adjusted for inflation based on the CPI:

 

Sugar +1,126%, Cocoa +728%, Soybeans +473%, Cotton +443%, Coffee +441%, Wheat +420%, Orange Juice +348%, Corn +200%. Average +522%

 

Gains agricultural commodities need to make from current prices to reach their 1970s highs adjusted for inflation based on the real rate of price inflation:

 

Sugar +4,203%, Cocoa +2,810%, Soybeans +1,914%, Cotton +1,809%, Coffee +1,800%, Wheat +1,726%, Orange Juice +1,473%, Corn +954%. Average +2,086%

 

NIA will be releasing many additional extremely important agriculture updates in the weeks and months ahead.

Posted via email from cash-gifts-gifting-generosity's posterous

Important NIA Update - correction



 

We would first like to quickly correct a small typo in our last alert. The third sentence in the eighth paragraph should have read, "It is amazing how absolutely nobody in the mainstream media is accusing Corzine of doing anything wrong, when $600 million in funds is still missing weeks after MF Global filed for bankruptcy." We mistakenly used the word "excusing", when we meant to say "accusing".

 

A major development took place today related to two of NIA's stock suggestions, including our latest stock suggestion Mines Management Inc. (MGN).

 

NIA's previous stock suggestion Revett Minerals Inc. (RVM) today announced that it has received an affirmative decision from the United States Court of Appeals for the Ninth Circuit relating to the Endangered Species Act (ESA) appeal filed by the Rock Creek Alliance and other environmental groups. The Court affirmed "the Fish and Wildlife Service's determination that the mine would entail "no adverse modification" to bull trout critical habitat and would result in "no jeopardy" to grizzly bears was not arbitrary, capricious, or in violation of the Endangered Species Act."

 

NIA first suggested RVM on March 22nd, 2010, at $1.9975 per share. In our initial report about RVM, we told you in regards to their Rock Creek project that "if the judge issues a negative decision, we could see a short-term sell off in the stock."

 

Just one week later on March 30th, 2010, RVM announced that "the Forest Service's decision to approve the Rock Creek Mine Project is vacated, and the 2003 Record of Decision and 2001 Final Environmental Impact Statement are set aside and remanded to the Forest Service for further action consistent with the Court's forthcoming opinion."

 

On March 30th, 2010 after this negative news, RVM dipped to a low of $1.50 per share, but we told you "the odds are in RVM's favor that the project will eventually proceed" and that RVM's temporary decline in share price was a "blessing in disguise for NIA members."

 

Today, after RVM's very positive court ruling, which makes it likely that their Rock Creek project will proceed like NIA predicted, RVM gained 26% to $5.35 per share. RVM reached a high today of $5.90 for a gain of 195% from NIA's suggestion price!

 

This news is also very significant for NIA's brand new stock suggestion Mines Management Inc. (MGN). In fact, MGN started to rally after RVM's announcement. MGN finished today up 11% to $2.13.

 

MGN's Montanore Project is located right next to RVM's Rock Creek project! If RVM is able to proceed with Rock Creek it makes it very likely that MGN will be able to proceed with their Montanore Project as well!

 

MGN's Montanore Project has a resource base of more than 230 million ounces of silver and nearly 2 billion pounds of copper! MGN, to the best of our knowledge, has the lowest valuation per ounce out of all publicly traded silver exploration companies in the world today!

 

MGN has $21.98 million in cash and no debt. With only 28.74 million shares outstanding, MGN's market cap at $2.13 is only $61.22 million. If you subtract MGN's cash from its market cap, MGN has an enterprise value of only $39.24 million.

 

With an enterprise value of only $39.24 million and a resource base of 230 million ounces of silver, that equals a valuation of only $0.17 per ounce! Silver is currently $34 per ounce, meaning that MGN's silver resource base is currently being valued at only 1/2 of 1% the price of silver! No other public silver company we are aware of has a silver resource valuation that is anywhere close to MGN's low valuation!

 

RVM gained from our suggestion price of $1.9975 to a high today of $5.90 for a gain of 195% and we believe MGN has the potential to make similar gains from our recent suggestion price of $1.92!

 

NIA's two most recent new stock suggestions before MGN were OPTT and MGP, and they made gains as high as 135% and 151% respectively from NIA's suggestion prices. NIA will not be releasing any new stock suggestions until MGN rises to substantially higher levels.

 

NIA's suggestion of MGN is completely unbiased. NIA does NOT own a stake in MGN. NIA is NOT being compensated in any way for its suggestion of MGN.

 

NIA is not an investment advisor. This email is not a solicitation or recommendation to buy, sell, or hold securities. Never make investment decisions based on anything NIA says. This email is meant for informational and educational purposes only and does not provide investment advice.

 

Additional legal disclaimer information: http://inflation.us/ legaldisclaimer.html

Posted via email from cash-gifts-gifting-generosity's posterous

MF Global Steals from NIA's Friend Gerald Celente



 

NIA's most popular guest who has been featured in many of NIA's previous documentaries is Gerald Celente, President of the Trends Research Institutute and editor of the Trends Journal, which you can subscribe to by going to http://www.trendsresearch.com. Celente has been bullish on gold for a long time and has been trading gold since 1978. His strategy is to accumulate gold futures until he owns enough to take delivery of the physical gold. He then holds on to the physical gold for the long-term in order to preserve the purchasing power of his savings.

 

Celente has a futures account with Lind-Waldock, a division of MF Global Inc. Celente had been accumulating December gold futures and was planning to take delivery of the physical gold next month. Last Monday, Celente received a call from his broker informing him that he had a margin call on his gold futures. Celente thought this was impossible because he knew that he had plenty of funds in his account to meet the margin maintenance requirements. His broker then told him that his money was with the Trustee now and unless he immediately sent over a large amount of cash, his positions would be liquidated.

 

The Trustee, in coordination with the CFTC, SIPC, and the CME, transferred over 17,000 customer accounts from MF Global to R.J. O'Brien. However, the Trustee only transferred about $1.55 billion or approximately 62% of the $2.5 billion in collateral that MF Global clients had. According to R.J. O'Brien, the accounts they received had only 75% of the margin maintenance requirements related to their accounts. This meant that every single MF Global client was now faced with a margin call and had to deposit additional funds to bring their accounts above R.J. O'Brien's initial margin requirement.

 

Many gold investors are buying gold to protect themselves from hyperinflation, which could hit the U.S. as soon as next year. Most of these people only keep enough of their wealth in U.S. dollars to pay their short-term bills and aren't in a position to wire over a huge amount of cash the next day. Therefore, most former MF Global clients have seen other people enter into their own personal accounts and sell their assets in recent days.
MF Global's CEO for the past two years was Jon Corzine, who made his fortune as CEO of Goldman Sachs and went on to become governor of New Jersey. Corzine should know a thing or two about taking major risks. After all, Corzine was one of the Wall Street CEOs that helped orchestrate the bailout of Long-Term Capital Management (LTCM) in 1998 after LTCM borrowed 97% of the money that they invested heavily into Russian sovereign debt that Russia defaulted on.

 

MF Global, with Corzine at the helm, invested $6.3 billion into the bonds of Italy, Spain, Belgium, Ireland, and Portugal. These bonds were set to mature next year and Corzine thought that as long as none of these countries defaulted on their debt, MF Global would make a large profit. Corzine apparently agreed with NIA's viewpoint that the ECB is likely to bailout any large eurozone countries and rescue them from default.

 

Unfortunately, Corzine made the same mistake LTCM did and used leverage of over 40 to 1. MF Global had over $40 billion in assets, but had less than $1 billion in equity. Last month after it was disclosed that FINRA forced MF Global to increase their net capital backing its European sovereign debt position, ratings agencies downgraded MF Global's debt, clients pulled funds from their accounts, and shareholders sold their positions, forcing the company to file for bankruptcy.

 

There is now $600 million missing from the accounts of MF Global clients. Any brokerage firm is legally required to segregate their funds from the personal funds of clients so that if the firm goes under, their clients' money is safe. It is amazing how absolutely nobody in the mainstream media is excusing Corzine of doing anything wrong, when $600 million in funds is still missing weeks after MF Global filed for bankruptcy. It is impossible for this to have been an honest accounting mistake. These funds are not just going to turn up anytime soon.

 

Obviously, there must have been some kind of criminal wrongdoing by Corzine. Most likely, this money was used by Corzine to back their European sovereign debt positions as money was flowing out of the firm in its final hours and more funds were needed to be put up to prevent forced liquidations. It is insane how after every news story about MF Global in the mainstream media, they almost always say, "Corzine hasn't been accused of any wrongdoing." You can bet if somebody like Ron Paul was CEO of MF Global, who is against the unconstitutional actions of the Federal Reserve, he would've already been arrested for using the funds of clients. However, if somebody like Ron Paul was CEO of MF Global, not only would he not have used clients' funds for corporate purposes, but his first step after taking over as CEO of MF Global would have been to reduce their leverage and get the firm out of debt.

 

Corzine is without a doubt directly responsible for the $600 million in missing funds, but because he regularly has $35,800 per plate fundraisers for Obama, he remains free while Celente and other MF Global clients are left wondering if they will ever see their money again. Interestingly, when MF Global had their latest bond offering, it said right in the prospectus that if Corzine was appointed by Obama to become Treasury Secretary and confirmed by Congress, those MF Global investors would receive 1% in extra interest on their bonds. The only good thing that will come out of MF Global's bankruptcy is that Corzine now has no chance of becoming Treasury Secretary and bankrupting our country in less than two years like he did to MF Global and almost did to the State of New Jersey. Unfortunately, the U.S. will likely experience hyperinflation in less than two years no matter who is Treasury Secretary, because we are at a point where our debt can only be paid back through monetization by the Federal Reserve.

 

If you would like your friends and family members to be among the first to see NIA's 'Occupy Wall Street the Documentary' coming soon, please tell them to become a member of NIA for free immediately at: http://inflation.us

Posted via email from cash-gifts-gifting-generosity's posterous

ECB Preparing Italy Bailout, Massive Inflation Coming



ECB Preparing Italy Bailout, Massive Inflation Coming

Italy's 10 year bond yields rose above 7% on Wednesday and economists from around the world are now proclaiming that these interest rates are unsustainable with Italy's national debt now 120% of its GDP. NIA believes the ECB is currently working on their largest bailout in history where they will commit to purchasing over €1 trillion of Italian bonds and bonds of other eurozone countries that are at risk of becoming insolvent. Despite the signals currently being given by the ECB, they will not allow Italy to fail because it will cause a Great Depression throughout the European Union, which will lead to the destruction of the eurozone.

 

Economists today fail to realize that 10 year bond yields of 7% are normal for not just Italy, but the rest of the eurozone and the United States. If it wasn't for the ECB holding their benchmark interest rate at artificially low levels for over a decade, Italy and other eurozone countries wouldn't have the high levels of debt they do today and they would be able to withstand yields of 7% or higher. The ECB is entirely at fault for the European Debt Crisis and they are about to follow in the footsteps of the Federal Reserve by abandoning their objective of maintaining price stability and keeping inflation low.

 

German 10 year bond yields declined again today to 1.72% and the spread between Germany and Italy is at a new record of 553 basis points. Germany is benefiting from safe haven buying from investors selling Italian bonds and buying German bonds, but investors will soon realize that German bonds are no better than Italian bonds and the world will dump all Euro denominated bonds.

 

Bond investors currently expect very little inflation in the eurozone, as seen by Germany's low bond yields. The sole reason for the large spread between German and Italian bonds is Italy's greater risk of default. However, a default by Italy would lead to the failure of Germany's largest banks. Germany knows this but they don't want to raise inflation expectations by making the world think that the ECB will be monetizing Italy's debt. Therefore, Germany is now telling Italy to request aid from the European Financial Stability Facility (EFSF) if needed.

 

Unfortunately, the EFSF doesn't have the financial resources to rescue a country the size of Italy. Last week, the EFSF had to cancel a €3 billion auction of 10 year bonds due to a lack of investor interest. On Monday, the EFSF finally had the bond sale, but was met with subdued interest that barely covered the €3 billion in bonds being offered. So far the EFSF has only raised a total of €13 billion through bond sales, but has received €440 billion in guarantees from eurozone countries. If Italy becomes a recipient of EFSF funding, the EFSF will lose one of their largest contributors.

 

The EFSF is looking to leverage up its €440 billion in funding to over €1 trillion. The European Debt Crisis was caused by too much leverage and debt. It is complete insanity to believe that the EFSF is going to solve the debt crisis when it too is getting deeply into debt and planning to use huge leverage to increase their funds available for bailouts.

 

There was recently a report that a proposal was made at the G20 summit last week in Cannes for Germany and other leading countries in the eurozone to pool together their foreign currency reserves including their gold reserves to back the EFSF, which would allow it to easily leverage up their funds and raise more money through bond sales. As soon as this report surfaced, Germany immediately announced to the world that they will not be using their gold reserves to boost the EFSF and that their gold reserves are "untouchable".

 

Germany's unwillingness to use their gold reserves clearly shows that gold is the real safe haven where individuals should store their savings if they want to keep their purchasing power. Investors buying German 10 year bonds with a yield of only 1.72% should ask themselves why Germany is willing to fund the EFSF with Euros but not their gold. Maybe investors will come to their senses and change their mind about buying any Euro denominated bonds.

 

For the past decade there has been a bond bubble in both Europe and the U.S. where we have seen bond yields at artificially low levels for an unprecedented amount of time. This has caused modern economists to believe that low bond yields are the new normal. When central banks interfere in the free market by manipulating interest rates to artificially low levels, it creates asset bubbles that eventually burst. When asset bubbles burst, the free market takes over and attempts to correct the damage by raising interest rates to extremely high levels, which encourages consumers to reduce their consumption and increase their savings.

 

NIA believes that over the next five years, 10 year bond yields will reach double digit territory throughout the eurozone and the U.S. The free market wants countries like Greece and Italy to default on their debts and restructure them, which is why their bond yields are rising so high. Although Greece and Italy have the highest debt levels in the eurozone as a percentage of GDP, the whole entire eurozone borrowed too much and has too much debt. Germany and France both know that the failure of Italy will spread to them when German and French banks with Italian debt begin to fail. The EFSF will soon be exposed as a failure itself when it is unable to attract the funding necessary to rescue eurozone countries in need of bailouts. Unless the ECB decides to bailout eurozone countries through the EFSF by buying their bonds, the ECB will be forced to directly monetize debts across the entire eurozone.

 

Even though the destruction of the eurozone seems imminent, NIA believes it will take time to play out. Most likely, in about two or three months from now the media will begin focusing its attention on the U.S. crisis. When the spotlight is off Italy, their bond yields will temporarily dip back down, but U.S. bond yields will skyrocket. The U.S. national debt is very close to breaking 100% of GDP, which will likely be a catalyst for investors to begin dumping their U.S. dollar denominated assets. The U.S. has unfunded liabilities many times the size of Italy's unfunded liabilities. Including unfunded liabilities, while Italy's total debts are approximately 300% of their GDP, the U.S. has total debts equaling about 600% of its GDP.

 

Austerity cuts are becoming very common in the eurozone and although citizens still protest them, it has become politically acceptable for politicians in Italy and other eurozone countries to support them. Italy's cash budget deficit as a percentage of GDP is currently only 3.9% and their national debt has been barely growing. The U.S. cash budget deficit as a percentage of GDP is currently 8.7%, more than double Italy, and the U.S. national debt has been growing at a record rate. Americans are used to stimulus over austerity. Members of Congress are too afraid to make necessary spending cuts. The U.S. has a budget deficit from entitlement programs and interest payments on the debt alone.

 

The supercommittee created by Congress to recommend $1.5 trillion in deficit reductions by November 23rd, so far hasn't agreed to make reductions to any entitlement programs. The Democrats and Republicans have so far only reached consensus on changing the way the government calculates inflation for Social Security cost of living adjustment (COLA) increases. They want to calculate inflation by using a new chain weighted CPI, which will understate inflation even more than the current CPI they use.

 

Based on how the current CPI has been miscalculating inflation for decades, Social Security recipients today should be receiving approximately triple their current payments. All Americans should be outraged that the government is planning to once again reduce the deficit through deception, when they should be eliminating wasteful government agencies like the Department of Energy, the Department of Education, and the Department of Homeland Security, while bringing our troops home from the middle east and immediately cutting overseas military spending in half so that we have the resources to better protect ourselves at home.

 

The extremely high levels of debt in both Europe and the U.S. need to be liquidated as soon as possible. If Italy can't sustain itself with 7% interest rates, which is only average on a historical basis, think about how large the crisis will be in the U.S. when interest rates here reach 15% as price inflation spirals out of control. Less than three months ago Italy's interest rates were below 5%. Fundamentally, Italy's economy is the same as it was three months ago, but perceptions in the marketplace change quickly. Today, U.S. treasuries are still perceived to be a safe haven, but this will change 180 degrees in no time.

 

Just like how the U.S. government understates inflation when calculating COLA adjustments, they also understate inflation when calculating GDP growth. The U.S. recently reported 3Q GDP growth of 1.62% on a year-over-year basis, which used a price deflator of only 2.52%. If they used the real rate of price inflation, they would have reported negative GDP growth. The Federal Reserve just lowered forecasts for U.S. GDP growth in 2012 to between 2.5% and 2.9%, down from a forecast in June of between 3.3% and 3.7%. In order to ensure that we even meet the Fed's new projections, the Fed will soon be launching QE3. NIA predicts that the Fed will use fears of contagion from the European Debt Crisis as their excuse for launching QE3 in the near-future. Combined with massive inflation from Europe as the ECB monetizes debt to save banks with exposure to Italian bonds, gold will soon skyrocket to new all time highs with silver likely beginning to once again outperform gold.

 

If you would like your friends and family members to be among the first to see NIA's 'Occupy Wall Street the Documentary' coming soon, please tell them to become a member of NIA for free immediately at: http://inflation.us

Posted via email from cash-gifts-gifting-generosity's posterous

European Debt Crisis Facts and Truth

European Debt Crisis Facts and Truth

 

The mainstream media as of late has been focusing its total attention on the sovereign debt crisis in Europe and seemingly has forgotten that we have a much larger debt crisis in the U.S. that hasn't gone away and is only getting worse. Many global economists have been saying in recent weeks that if the European Central Bank (ECB) only went the way of the Federal Reserve, eurozone nations wouldn't be in the desperate situation they are in today. NIA believes that the ECB has already been acting just like the Fed, just not to the same extent.

 

Mario Draghi just took over as the new President of the ECB and as his first act in office, Draghi lowered the ECB's benchmark interest rate by 0.25% to 1.25%. The ECB's interest rate of 1.25%, while not quite as low as the Fed Funds Rate of 0% to 0.25%, is still very inflationary. The ECB's primary stated objective has always been maintaining price stability and containing inflation. However, with all of the rioting and civil unrest that took place in Greece in response to major austerity cuts, public officials in countries like Spain have been putting pressure on the ECB to abandon their objective to maintain price stability and instead focus on helping fuel growth.

 

In May of 2010, eurozone countries along with the International Monetary Fund (IMF) agreed to rescue Greece from default by giving them a €110 billion loan. Of the €110 billion loan, eurozone countries agreed to contribute €80 billion of the funds, including Germany providing €29.3 billion and France providing €22 billion. The IMF agreed to contribute the remaining €30 billion.

 

Unfortunately for Greece, their bond yields have been skyrocketing and they have been finding it difficult to raise money on their own. Greece is now in need of additional rescue funds. In July of 2011, after Greece's two year bond yield rose as high as 40.46%, European leaders negotiated in Brussels a deal to provide Greece with a new bailout of €109 billion in rescue loans. After this deal was announced, Greece's two year bond yield declined to 25.66% in just two days.

 

In August, Greece's two year bond yield started to surge once again, surpassing July's high of 40.46%. In mid-September, Moody's downgraded the credit ratings for the eight largest Greek banks, sending the two year bond yield to a new high in September of 84.52%. In early October 2011, Greece raised their 2011 budget deficit estimate as a percentage of GDP to 8.5%, well short of the 7.6% target that Greece promised to meet as a condition of the bailout package agreed to in July.

 

In late-October, European leaders abandoned their proposal from July and announced a new shocking bailout plan for Greece. Not only did they agree to give Greece new rescue funding of €130 billion, but in an additional part of the agreement, banks holding Greek bonds have agreed to accept a 50% haircut on the money they are owed by Greece. Greece Prime Minister George Papandreou, instead of accepting the deal on his own, announced that he was going to hold a referendum so that Greek citizens can vote on the deal.

 

Papandreou's proposed referendum infuriated leaders of Germany and France, who expressed their frustrations with Papandreou and threatened to pull the plug on the bailout deal. Greek bond investors once again panicked, sending the two year yield all the way up to a new high of 107.26%. Papandreou later announced that he was canceling the referendum, but still faced calls from the opposition to resign. Papandreou survived a confidence vote this weekend but is planning to soon step down to allow the creation of a new national unity government.

 

NIA believes that the best decision for Greece and its citizens would be to turn down the new bailout deal and declare bankruptcy. Greece would be best off leaving the eurozone and creating their own fiat currency. The bailouts are doing nothing to help the citizens of Greece, they are only helping the German and French banks that recklessly purchased Greek bonds at artificially low interest rates. If Greece declares bankruptcy, the country won't self-destruct. All of their infrastructure will still exist, but their debts will be eliminated and Greek citizens will enjoy a higher standard of living.

 

The only good news to come out of the European debt crisis so far is that the banks are willing to accept a 50% haircut on their Greek bonds. If the U.S. is going to survive its debt crisis without creating hyperinflation, it will need to convince its creditors to take an even larger haircut on U.S. treasuries. Unfortunately for Americans, the U.S. will never admit that it can't pay back its debts. The U.S. debt crisis is even worse than Greece, but the U.S. has a printing press that it will use to pay back China, Japan, and our other creditors, which will steal the remaining purchasing power of American citizens who don't have their savings in gold and silver.

 

The uncertainties and fears surrounding Greece are now spreading to Italy, which saw its 10 year bond yield skyrocket in recent days to a new Euro-era high today of 6.66%. Greece's liquidity problems began last year after their 10 year bond yield rose above 6%. Many people believe that Italy is becoming the next Greece and is now at risk of defaulting on its debt.

 

Even though Italy's debt to GDP ratio is 120%, the second highest out of eurozone countries behind Greece, Italy's budget deficit as a percentage of GDP is among the lowest in the eurozone at only 3.9%. It is insane for Italy's 10 year bond yield to be 6.66% with the U.S. 10 year bond at only 2.04%. The U.S. has no chance of ever balancing its budget and will likely see its deficit explode to new highs in the years ahead. Italy, on the other hand, could realistically balance its budget if it implements reform measures to cut spending.

 

NIA believes that Italy's 10 year bond yield is near a short-term peak because everybody has become negative on Italy all at once. It will likely decline back below 6% in the near future as Italy implements more austerity cuts. America's strategy to grow its way out of its own debt crisis will only create massive price inflation without any real economic growth. Before long, U.S. bond yields will surge faster than anybody has ever seen in history. In a few months, the media will forget about Italy and focus their attention on the U.S.

 

Although a 10 year bond yield for Italy above 6% may be a new high for the Euro-era, Italy's 10 year bond yield averaged well above 6% for many decades before the eurozone was created. Italy made a major mistake by joining the eurozone. Before joining the eurozone, Italy was able to survive even when their 10 year yield reached a high of 13.75% in 1995. After joining the eurozone, Italy was able to borrow money at interest rates that were manipulated to artificially low levels by the ECB. If Italy's bond yields were still being set by the free market this past decade, they would have no where near the level of debt they do today.

 

Many investors selling Italian bonds are now buying German bonds, because Germany has a low debt to GDP ratio and one of the world's largest manufacturing bases. German 10 year bond yields are now 1.78%, a record 488 basis points below Italy. This huge spread will not last and NIA believes investors are making a mistake by buying German debt over Italian debt. There is no chance of Italy being allowed to default on its debt. If Italy ever gets to the very edge of insolvency, Germany and France will allow the ECB to monetize Italy's debt. If Italy went bankrupt, many of the largest banks in Germany and France would fail. The ECB will not allow this to happen.

 

As bad as things are in Europe today, with the media making it seem like Euro Armageddon is fast approaching, you would expect the Euro to currently be collapsing on a daily basis. The Euro, which ended last year at $1.34, has risen so far in 2011 to $1.38. This shows that even with all of the inflation being created by the ECB, it is nothing compared to the inflation being created by the Fed. The U.S. is lucky for the European debt crisis because it is taking attention away from our problems and allowing the Fed to secretly prepare QE3 while our bond yields are still near record lows.

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