Yeah, That’ll Solve Everything

by Addison Wiggin – April 20, 2011

  • The one and only solution to the crushing national debt, as discovered by 72% of Americans… and why it won't work
  • Chinese credit agency, central bank, Treasury all dump on D.C.'s management of the dollar
  • Byron King with a firsthand look at Russia's version of the Livermore Laboratory… and why it reinforces one of his favorite opportunities
  • Petty tyrants bring down iconic bit of Americana… Small business soldiers on
  • A 14-year-old girl "taken in" and a plea to "not add to the hype"… Reader outrage overflows our mailbag

Do you see that target forming? Oh wait, you probably can't… it's on your back.

An overwhelming majority of the general U.S. populace polled by The Washington Post insists the government "keep its hands off Medicare."

A smaller majority want to keep military spending intact. The only thing that gets majority support is raising taxes on incomes over $250,000 a year.


We're all for it. But only if we enact legislation that completely dissuades people from innovating and starting new businesses while we're at it. Let's nationalize a few more industries too. We've already locked up mortgages and the auto industry… let's shoot for oil and gas next.

If the U.S. is going to go the way of Venezuela, we might as well get it over and done with.

One question: Can we shut down the borders to immigrants and trade any faster? We're really getting impatient.

[Seriously, is there a better time to debate Fight or Flight? On a cynical morning like this, Vancouver in July feels like it's already going to be too late.]

Assuming incomes over $250,000 were taxed at the rate they were a decade ago in 1999 — before those onerous Bush era tax cuts — the government could bring in another $70 billion in revenue per year, say number crunchers from the Congressional Budget Office (CBO). Such a measure would accomplish the following:

  • Overall revenue would grow a whopping 2.7% over the current $2.6 trillion
  • The deficit would be cut from a staggering $1.65 trillion to a far more manageable… $1.58 trillion
  • The tax increase would cover a huge chunk of the interest owed on the national debt — 17 cents out of every dollar!

Woohoo! Let's get real about deficit reduction! Yeah! Like the mortgage-burning parties of old… let's burn Treasuries… cuz we no longer need 'em! YEAH!!!!

(Oy. Remind us not to stay out too late on Tuesday evenings any more.)

"The fundamentals of the U.S. economy do not support an AAA rating," Guan Jianzhong, chairman of Dagong Global Credit Rating Co., responded yesterday to S&P's reticence.

Dagong Global is the Chinese firm that raised a jaundiced eyebrow last November by being the first to cut Uncle Sam's credit rating.

Guan says he's not impressed by Standard & Poor's move on Monday to move its outlook for the United States from "stable" to "negative" — while keeping its AAA rating intact.

"The sovereign credit rating is a core interest of the U.S.," says Mr. Guan, "the ratings have been nonobjective and unequal. [Congress] won't ever make real cuts. We will consider a further downgrade in the U.S. rating, as the economy hasn't shown any sign of improvement in its fundamentals."

If history is any guide, we can expect many more of these kind of proclamations, from China, India, South Korea… Bangladesh… before anyone in Washington even begins to pay attention.

"We hope the U.S. government," reads another such statement from the Chinese Foreign Ministry, "will take responsible policies and measures to safeguard investors' interests."


China has piled up $3.05 trillion in foreign exchange reserves.

About two-thirds of those are in dollars. U.S. paper money. When the foreign ministry says "investors' interests," it doesn't take a proctologist to know they mean "our own interests."

$3.05 trillion in forex reserves is too much, declares Zhou Xiaochuan, governor of China's central bank, piling on.

"The rapid increase in reserves," he said after a speech in Beijing, "may have led to excessive liquidity and has exerted significant sterilization pressure. If the government doesn't strike the right balance with its policies, the buildup could cause big risks."

He didn't specify what he plans to do about that, but the implication is pretty obvious: He wants to reduce China's exposure to the dollar.

You'd be wise to do the same. We were in Zurich last week exploring new options for you. Our report is almost complete. In this week's episode, you can investigate our investment recommendations from Colombia…. next month, we'll help you grow rich outside the dollar.

Indeed, the latter is a skill you will need to master in our brave new world.

As much as we dislike the acronym coined by Goldman Sachs, the BRIC countries — Brazil, Russia, India, China — and new club member South Africa agreed yesterday to start transacting more in their own currencies.

If China buys up Brazilian soybeans, for example, or Brazil buys finished goods from Russia, such as they are… the countries have unilaterally agreed to transact their deals in real, yuan, or rubles… and now rand… bypassing the greenbacks you have stuffed in your wallet.

Get used to it.

Little wonder, then, the greenback plunged 0.8% today. At 74.4, the dollar index threatens once again to breach the November 2009 lows.

If that happens, the next level to watch out for is the all-time low of 70.8 in the spring of 2008.

Likewise, gold has powered to a new all-time high at $1,505.

Silver just pierced $45.

"I'm worried about silver," says Vancouver veteran Jim Rogers. "If silver continues to go up like it has been over the past two or three weeks, then it would get to triple digits this year.

"I certainly hope it doesn't happen, because I own silver and want to buy more. My hope is silver and gold and all commodities will continue to go up in an orderly way for another 10 years or so, and eventually the prices will be very, very high.

"I hope something stops [silver] going up in the foreseeable future and we have a correction."

Stocks are on a tear this morning. The Dow is up 200 points. Yes, there've been upbeat earnings numbers from the tech sector. But we'll chalk up a good bit of it to that falling dollar… especially after looking at a chart of the S&P and the dollar index over the last year…

"This place is crowded," says Byron King, reporting from Moscow — population 11 million. "There are a lot of people here, with their cars."

Byron made his way through traffic to visit the Russian Leading Research Institute of Chemical Technology (VNIIHT). "It was founded early in the days of the nuclear age — 1951, to be exact — to focus the nuclear research and scientific efforts of the former Soviet Union. It's the equivalent of a U.S. national laboratory, like Sandia or Livermore.

"Along the way, the Russian scientists figured out that there are a lot of rare earths associated with nuclear-bearing minerals. Thus has the VNIIHT mission come to include the study of rare earths."

After spending the day there, "I have to say that this organization may be the world's leading site for the study of rare earths chemistry, particularly the hydrometallurgy necessary to turn rocks into useful end products."

VNIIHT is working hand in hand with a company Byron's had his eye on for a while now… a dark horse in the race to become the first new producer of rare earths outside China, breaking China's current 97% monopoly. Byron's eager to tell you about this company's lucrative $13.8 billion discovery right here.

"Cable television is fighting a losing battle," says Patrick Cox, observing the proliferation of streaming video online. "If the traditional providers do not adapt to the Web quickly, they are soon to go the way of weekly news magazines."

Case in point: "Recently, my satellite television company announced that a huge list of formerly premium movie channels have been added, at no cost, to my plan. The reason, clearly, is that consumers are losing interest in traditional television delivery methods.

"Already, we have streaming services like Roku taking Internet content directly to televisions. Game platforms like the PlayStation and Xbox do the same thing. Everybody knows about Netflix, a company I consulted for when it was just a few people in an office in the mountains of Northern California."

Over the weekend, Patrick watched live free streaming of the Coachella music festival from Southern California. "Other festivals have been streamed before, but this was the most technically perfected event I've ever seen. Commercials appeared only as links on the home page. In full screen, they went away entirely.

"My son and I watched a lot of the performances on one of my large screens with a good sound system. The camerawork was first-rate, as was the audio mixing. It was amazing to see the potential of the Web realized to such an extent."

The "Next Net" that Patrick has been writing about for a few months now is becoming reality before our eyes. It's not too late to get in on some of the cutting-edge technologies that will make today's Internet look like dial-up before the year is out. Learn about the most promising opportunities here.

The owner of a new barbershop in Thornton, Colo., has been told he can't put a traditional barber pole outside his establishment. The sign code bans signs that move mechanically.

God forbid the pole gets displayed outside

"It is related to public safety," an officious Robin Brown of the City Development Department explains to the Denver Post. "We don't want signs to be distracting, especially to motorists."

We looked on the website of the National Highway Traffic Safety Administration to find out the percentage of accidents caused by drivers mesmerized at the sight of spinning barber poles… but we came up empty.

Thornton is not alone. Thanks to similar ordinances around the country — plus the ever-present competition from China — only one U.S. company still makes barber poles.

In 1967, the William Marvy Co. of St. Paul, Minn. sold 5,000 barber poles. A typical year nowadays? 500.

"I have researched multiple companies and I am not happy with the haircut going in and possibly going out," writes a reader under the subject line "Gold Purchasing for Dummies."

"What is the best way ($) to acquire the metal? Stocks or metal? I think both, but is there an optimal ratio to total portfolio?"

The 5: Metal first, then stocks. "My advice," says Byron King, "is 5-10% of your total portfolio" devoted to physical metal. "Or more, if it helps you sleep at night. I've said it again and again. Buy gold and silver until you can sleep soundly."

Once you've built up that core position, you have a host of choices. Byron lays out nine of them here.

"Please," writes an indignant reader after a passing reference yesterday to Social Security as an "entitlement."

"Do not buy into or add to the hype that a program that I paid into all of my life is any kind of giveaway program that is aimed at keeping the sheep and zombies from rioting (and voting).

"Social Security would be alive and well today if not for the thieves and criminals in office. They should all fill our prisons."

"Why is it," adds another, "that everyone alludes to Social Security and Medicare as 'entitlements' when they are really debts owed to the people who were forced into paying for them by the government for all of their working years?

"What makes the U.S. government any less indebted to the citizens of this country who paid into these schemes of Social Security and Medicare than it is to China or any other holders of 'guaranteed bonds' of debt?

"I'd be satisfied if I got a refund for every penny I put into both scams, and I'd let the government off the hook, grudgingly. Short of that, I want full payment of guaranteed benefits for as long as I live. If the government has a problem paying its bills, let it stop paying every congressman and senator for a few months or a year, as needed."

The 5: And you make that happen how…? By voting?

"I listened with interest," a reader writes, "to the speech of 14-year-old Tricia Willoughby thanks to the link provided The 5. Tricia certainly has a passion for the founding principles of our country, and with a good deal of coaching, she verbalizes the high ideals.

"Too bad she has been taken in.

"She says that our government has too much debt. But before Bush, we had surplus and were paying off that debt. Not anymore. The Tea Party has not deigned themselves to repudiate the Bush policies, as I do now. Those policies — the tax cuts, two wars and the expansion of Medicare — were and are a continuing disaster for our country.

"Cut the spending and then you may have a tax cut. Just like your parents taught you, eat your meat and then you may have some pudding… or was that Pink Floyd?

"I am as financially conservative as any of you, but I think you have backed the wrong horse."

The 5: Wow. Selective memory?

"With all due respect to Tricia Willoughby and other naive Tea Partiers," adds another, "calling for reduced taxes in a time of huge government deficits is simply foolish. Cutting taxes without first cutting spending is simply stupid policy.

"No one hates paying taxes more than I do, but cutting taxes before first cutting spending is a crime against Ms. Willoughby's and our own children's generation."

The 5: The "surpluses" of the late '90s were achieved by raiding the Social Security trust fund, a practice first established by the Reagan administration. The national debt continued to rise every year… as it does now.

"I lived for two years in Sweden," writes a reader who saw our account of the Vasa yesterday. "I visited the Vasa many times back then. It was originally designed to support one level of guns. But the king kept asking for more cannons.

"After the fourth level, the ship was top-heavy and not weighted right. Thus, it sank a few minutes into its maiden voyage.

"I've been to the Vasa Museum," writes another, "and to Sweden numerous times. I've been told that Sweden, in the face of recent budget crises, privatized its railroads, closed down half of its post offices and has gone big for school choice.

"Could we learn something?"

"The extra deck of cannons," a third chimes in, "was added too high above the waterline, jeopardizing the stability of the ship, and over she went. Sort of like too much debt and Bernanke bucks being printed, which will destabilize our U.S. dollar."

The 5: Hmmn… and we thought we were being both clever and subtle.


Addison Wiggin
The 5 Min. Forecast

P.S. This just in: Our busybodies in Washington have just cooked up a new way to score a little bit more tax revenue.

Nothing official yet — it's just in the proposal stage… but let's just say you might want to make sure you're current with the IRS before booking your next trip. Much more about this tomorrow.


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