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Political Risk Is Evaporating Treasuries

by Trace Mayer, J.D. on June 1, 2009 · 8 comments

Reading time: 7 – 12 minutes

Political risk is increasing and predictably the Treasury bubble has been bursting.  There are major machinations going on in the bond market which will significantly affect you.

On 3 January 2009 I wrote United States Treasuries Are The Biggest Bubble Of All and on 18 January 2009 followed it up with Why And How The Treasury Bubble Will Burst concluding with “Taking possession [FRN$s] eliminates at least two types of risks.  First, is any potential counter-party risk with whoever is holding the Treasury Bill for you.  Second, ‘political risk’ which is a much larger threat. ”  On 7 May 2009 I wrote about the key ratios moving and have been vindicated.

THE CRACK-UP BOOM

As Ludwig von Mises predicted decades ago in chapter 20 of Human Action, ‘The boom can last only as long as the credit expansion progresses at an ever-accelerated pace. … But then finally the masses wake up. … A breakdown occurs. The crack-up boom appears.’

The crack-up boom is in process and the intensity accelerating.  Everyone knows or should know that the United States government is unable to perform on their debt in regards to purchasing power.  The United States government is a failing counter-party and the FRN$ is doomed.

POLITICAL RISK INCREASES

The Great Writ of Habeas Corpus provides for individuals to challenge their detention.  The United States Constitution decrees in Article 1 Section 9 Clause 2 that “the Writ of Habeas Corpus shall not be suspended, unless when in Cases of Rebellion or Invasion the public Safety may require it.”  The Sixth Amendment provides:

In all criminal prosecutions, the accused shall enjoy the right to a speedy and public trial, by an impartial jury of the State and district wherein the crime shall have been committed, which district shall have been previously ascertained by law, and to be informed of the nature and cause of the accusation; to be confronted with the witnesses against him; to have compulsory process for obtaining witnesses in his favor, and to have the Assistance of Counsel for his defense.

The Supreme Court struck down the three great American tyrants in their attempt to violate this clause with Ex parte Milligan, Korematsu v. US and Rasul v. Bush.

29 July 1921 Adolf Hitler assumed leadership of the NSDAP and became Der Führer.  During 1923 the Reichmark evaporated and Hitler was released from prison 20 December 1924.  Conditions continued deteriorating and on 28 February 1933 the Law for the Protection of People and State or Reichstag Fire Decree is enacted providing in § 1:

Articles 114, 115, 117, 118, 123, 124 and 153 of the Constitution of the German Reich are suspended until further notice. It is therefore permissible to restrict the rights of personal freedom [habeas corpus], freedom of opinion, including the freedom of the press, the freedom to organize and assemble, the privacy of postal, telegraphic and telephonic communications, and warrants for house searches, orders for confiscations as well as restrictions on property, are also permissible beyond the legal limits otherwise prescribed. 

By 14 July 1933 Hitler has declared the success of the Nazi revolution and it became the only party in Germany with all others banned.

OBAMA ANNOUNCES PREVENTIVE DETENTION

On 20 May 2009 the New York Times reported:

President Obama told human rights advocates at the White House on Wednesday that he was mulling the need for a “preventive detention” system that would establish a legal basis for the United States to incarcerate terrorism suspects who are deemed a threat to national security but cannot be tried … Human rights advocates are growing deeply uneasy with Mr. Obama’s stance on these issues … — a concept he criticized bitterly as a presidential candidate. The two participants, outsiders who spoke on the condition of anonymity because the session was intended to be off the record, said they left the meeting dismayed.  They said Mr. Obama told them he was thinking about “the long game” — how to establish a legal system that would endure for future presidents.

This talk about establishing a legal system that will endure for future presidents baffles me.  Why will President Obama not open up a copy of the Constitution and read it?  There already is a legal system that has endured for centuries and is the supreme law of the land.

While the Obama administration is intentionally exacerbating the greater depression; in addition why does President Obama feel compelled to rewrite ad hoc tyrannical procedures that undermine essential principles of free and open societies?  President Obama has accomplished more in his first four months than Hitler did.  This is like the caterwauling of a cougar instead of the screetching tunes of someone learning saxophone for the first time.

GOLD AND POLITICAL RISK

Fiat currencies represent the common stock of nations.  This decade all fiat currencies have been evaporating relative to gold.  Those who did not follow my warnings in the two articles about the Treasury bubble are probably down between 30-50% depending on how their positions were setup.

There have been rumors which I have been unable to verify that United States embassies around the world have been instructed to acquire local currencies.

While reviewing the logs for my site I came across someone who searched Google for “how to buy gold delivery”.  While this is not unusual what is unusual is who it was and how long they spent on my site.

I wonder what briefing or meeting the Department of Homeland Security employee was in that prompted them to search on “how to buy gold delivery” in Google?  It seems as if governments and their officials in their cute little costumes seem to be getting increasingly scared.

I wonder if they were trying to figure out how to buy gold coins or gold bars.  Maybe they were even venturing into the less prominent area but lately more profitable and trying to learn how to buy silver coins or silver bars.

KEY RATIOS MOVING AS PREDICTED

As I wrote about in the key ratios moving, “While the DOW may continue its rally I highly doubt it will breach 11.5 gold ounces before it resumes its downward destiny and reaching 5-6 ounces sometime this year.  Silver will likely continue its upward ascent and return to a more normal ratio with gold around 55.”

Since Obama’s tyrannical declaration regarding preventative detention gold has moved from $920 to $980 or 6.5% while silver has moved from $13.75 to $15.75 or 14.5%.  The gold to silver ratio is currently about 62.5 while the DOW/Gold has moved to 8.9 from 9.32.  The DOW/Gold will likely encounter some volatility because the failures General Motors and Citigroup have been replaced with Cisco Systems, Inc. and The Travelers Companies, Inc.

Gold is currently 1.14x and silver is 1.31x their 200dma.  These trends will likely remain in place until the price of gold is about 1.3x its 200dma while the price of silver is about 1.5x its 200dma.

For those who do not own the precious metals yet, even though a good portion of this latest up-leg has passed, now is a good time to consider how to buy gold or silver.  A useful third-party service is GoldMoney which allows for physical delivery at any time as opposed to the problematic GLD or SLV ETFs.

Meanwhile the Treasury bubble has burst and the USD index is now below 80.

CONCLUSION

Gold and silver and not mere barbaric commodities but essential checks and balances in the political machinery.  This is why they are in the United States Constitution.

Obama is outdoing Hitler regarding the acquisition of tyrannical power.  Like the American tyrants Abraham Lincoln, Franklin Delano Roosevelt and George W. Bush; President Obama’s administration is like a bad nightmare.

Gold, silver, oil and stocks are moving predictably while the Treasury bubble is bursting as the FRN$ is breaking down.  The bottom line:  political risk is increasing and gold is moving.  Hopefully you have a 72 hour kit, have learned how to buy gold or silver coins or bars and are prepared because  The Great Credit Contraction has only begun.

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8 comments

ABOUT THE AUTHOR: Trace Mayer, J.D., author of The Great Credit Contraction holds a degree in Accounting, a law degree from California Western School of Law and studies the Austrian school of economics. He works as an entrepreneur, investor, journalist and monetary scientist. He is a strong advocate of the freedom of speech, a member of the Society of Professional Journalists and the San Diego County Bar Association. He has appeared on ABC, NBC, BNN, radio shows and presented at many investment conferences throughout the world. This is merely one article of 240 by .
Free Free Great Credit Contraction Sample

{ 4 comments… read them below or add one }

1 Walter Hunt June 2, 2009 at 7:59 am

Sir – I haven’t received a sampling of The Great Credit Contraction yet.

Am very much interested in checking it out for a possible purchase.

Lots of time on my hands, as I am retired.

Thank you. -Walter Hunt, Olympia, WA

2 Joseph A. Rohner III June 2, 2009 at 8:20 am

Trace, this has been big PROBLEM from the beginning when I bought your book. The material is fabulous and well-written, but there are several problems with nthe way the site is displayed:

1. The font is far to small for older people like me (63). The problem applies to every article, as well as your e-book. It is too much of a strain to read; it is very inconvenient to need to adjust with the browser – even that doesn’t always do the job. This is especially true on the emailed new articles. The printed copy of the e-book is a struggle to read, but that’s becaome my eyes are ‘over-the-hill.
(The book needs to go to ‘print’ – it’s fantastic, but the font needs to be much larger).

2. IE always displays the pages far too broad – the never fit the screen. One must either scroll back and forth, or dump the favorites menue bar. That isn’t necessary on ay other site I follow.

I don’t know what the solution is, but these issues seem unique to your site. I don’t experience them on anywhere esle.

I would look at Casey Research and try to duplicate how those good folks set up theri site. I’m no techie expert,but they are doing it right for the ‘hard-to-read’s’. I suspect that a HUGE number of his readers are also ‘old farts’ like me.

Keep up the great work Trace. I am genuinely trying to be helpful. You have this problem NAILED! The whole country needs to pay attention.

Cheers,

Joe Rohner

3 Trace Mayer, J.D. June 2, 2009 at 9:02 am

Walter,

Sometimes it can take a while for the sample to be delivered but there is a link in the first email that is delivered quickly though to download it.

Joe,

The Adobe program ‘-’ and ‘+’ buttons where you can zoom in and zoom out of the book. You can make the font as large or as small as you want which can be extremely helpful.

The new emailed articles are either archives of the best articles or a notification of a new article. The notifications contain the hyperlink to the article on the site. The exceptional archived articles also contain a hyperlink to the original article. That way they need not be read in the email program.

As far as display issues and IE …. IE is pretty much being abandoned by web designers for many reasons as IE continues losing market share and so it is getting increasingly costly to build sites that view in IE and the returns are decreasing. Consequently, I recommend Firefox or some other browser which does not have the tremendous flaws, including security, that IE does.

The article column width is 480 pixels which should easily fit within any screen even with the lowest resolution. For readers like your self I added a widget where you can easily click a button or use a drop down menu and increase or decrease the size of the font. You can find the widget under the silver price chart.

I also wrote this article to help people get the most out of the site and have the easiest experience:

http://www.runtogold.com/2009/05/make-your-internet-browsing-better/

4 Rich Wasem June 2, 2009 at 10:09 am

Hello Trace – Enjoyed meeting and chatting with you last week at Elijah’s in La Jolla. Am enjoying your website and articles. Keep up the good work. Best Libertarian Regards – Rich Wasem

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