The United Sates Has Effectively Defaulted At Least Six Times (GLD, SLV, TLT, TBT, UUP)
Larry Edelson: Despite all the grandstanding and dirty politics in Washington, any day now the United States debt ceiling of $14.294 trillion will be raised.
I have no doubt about it. And quite frankly, it doesn’t really matter what agreements they come to in order to raise the debt ceiling. In the grand scheme of things, whatever they do will be nothing more than kicking the can down the road.
Because the United States government is in worse shape than being flat broke. It’s completely insolvent. The debts and IOUs the government has racked up are patently unpayable.
Don’t get me wrong. There is going to be pain ahead for everyone. Social Security benefits are going to be cut … Medicare, too. A lot of us are going to suffer. I am not unsympathetic.
The simple truth of the matter is that I have never relied on the government for anything, and I am not about to do so now. Neither should you.
You need to take your fate into your own hands and fend for yourself. Period.
The way to do that is with the types of investments I recommend in my Real Wealth Report — in tangible assets and natural resources such as gold and more. And by investing in economies that are solvent, not insolvent — such as Asia.
But there’s also another way to protect your money and grow your wealth. I’m not talking about investments. I’m talking about recognizing the truth. The historical truth.
Anyone who tells you that the United States government has never defaulted on its debt is simply either completely ignorant or, worse, being outright irresponsible.
The fact of the matter is that …
The United Sates Has Effectively Defaulted At Least Six Times
Default #1: The Continental Currency Default of 1779
Largely to fund the Revolutionary War, the Continental Congress of 1775 issued notes totaling 241 million Spanish milled dollars over roughly a two-year period.
They were the first of the so-called “Continental dollars.” But since Congress had no power of taxation, it made each of the then-13 states responsible for paying them off, prorated based on their population.
But the states couldn’t pay them off. So in November 1779, Congress agreed to redeem the notes — with currency worth less than 1/38th the Continental’s original value.
Default #2: The Default of 1790
In addition to its currency issuance, the Continental Congress borrowed money both domestically and abroad. The domestic debt totaled approximately $11 million Spanish dollars. The interest on this debt was paid primarily by money received from France and Holland as part of separate borrowings.
When foreign lending dried up, Congress defaulted on its domestic debt starting on March 1, 1782 — by refusing to pay and, instead, accepting the notes for payments of taxes.
By 1790, Congress repudiated these loans entirely.
Default #3: The Greenback Default of 1862
In August 1861, to fund the Civil War, Congress created a new currency which became known as the “greenback” due to the green color of its ink.
The original greenbacks were $60 million in demand notes in denominations of $5, $10, and $20 — redeemable at any time at a rate of 0.048375 troy ounces of gold per dollar.
But in January 1862, only five months later, the U.S. Treasury defaulted by refusing to redeem them on demand.
Later, the Treasury issued “greenbacks as non-redeemable legal-tender.” They traded hands at discounts from the original greenbacks of as much as 40%.
In effect, the currency was devalued by as much as 60% to finance the Civil War.
Default #4: The Liberty Bond Default and Gold Devaluation of 1934
The financing of the United States government stepped up to an entirely new level as a result of the cost of World War I. So starting in 1917, Congress issued “Liberty Bonds.”
The last bond issue, October 24, 1918, was a $7 billion, 20-year, 4.25% percent issue, payable in gold at a rate of $20.67 per troy ounce.
By the time Franklin Roosevelt entered office in 1933, the interest payments alone were draining the Treasury of gold. In addition, the country’s total debt had climbed another $18 billion to $22 billion. Yet, the Treasury had only $4.2 billion worth of gold.
Also, during the Depression, Americans were attempting to redeem their dollars for gold and then hoarding that gold like crazy.
End result: President Roosevelt decided to default on the domestically-held debt by refusing to redeem dollars in gold and, instead, confiscating gold and then devaluing the dollar by 40%, which was essentially also a default on America’s trade partners.
Default #5: Nixon Permanently Severing the Dollar’s Link to Gold
On August 15, 1971, President Nixon abolished the dollar’s link to gold. This was because there had been a run on the dollar in the late 1960s, since the United States was printing far more money than it could possibly back with gold.
So, foreign holders of our dollars wanted their gold, period. Nixon told them to take a hike and permanently severed the dollar’s convertibility into gold.
In effect, it was a 100% devaluation of the dollar. Since 1971, the value of gold has soared from $35 an ounce to today’s roughly $1,600. Which is merely another way of saying that the U.S. dollar has lost an amazing 97.8% of its value since 1971.
Put another way, in 1971, one U.S. dollar would have purchased you 1/35th of an ounce of gold.
Today, one U.S. dollar purchases just 1/1,600th of an ounce of gold.
And put yet another way, for every $1 Uncle Sam borrowed in 1971 that may still be an outstanding debt — he can now pay that debt back now with currency worth 1/1,600th of its former value.
Call it whatever you want, but as far as I’m concerned, that’s an all-out default. In fact, any time the government devalues the purchasing power of its currency, it’s a default, plain and simple.
So even if the government continues to pay its bills, as long as it’s paying them with currency that it plans on being worth less, it’s still a default.
Default #6: Ongoing: The Intentional, Further Devaluation of the U.S. Dollar
Despite the euro sovereign debt crisis being out in the open, the dollar is plunging in value against the Swiss franc, as well as the Aussie and Canadian dollars. Plus, it has just plunged to a 17-year low against the Chinese yuan.
This is all part of “Bernanke’s Secret Debt Solution” for the United States. He knows darn well that we can never repay our debts without inflating them away … by devaluing the dollar.
So do many others in Washington.
The SINGLE BEST thing you can do to protect your wealth is recognize this and take appropriate action by investing in asset classes that will preserve and grow your wealth.
Those asset classes are gold, natural resources in general, and Asian economies.
In fact, all the “great rebalancing” talk you hear out of Washington these days when they speak about the global economy is nothing more than code speak for devaluing the dollar even further, and largely to get Asia — and China, in particular — to spend more money.
Which is precisely what Asia is doing these days. Their economies are running on all eight cylinders!
Related ETFs: SPDR Gold Trust (NYSE:GLD), ProShares UltraShort 20+ Year Treasury ETF (NYSE:TBT), iShares Barclays 20+ Year Treas Bond ETF (NYSE:TLT), PowerShares DB US Dollar Index Bullish ETF (NYSE:UUP), iShares Silver Trust (NYSE:SLV).
Uncommon Wisdom (UWD) is published by Weiss Research, Inc. and written by Sean Brodrick, Larry Edelson, and Tony Sagami. To avoid conflicts of interest, Weiss Research and its staff do not hold positions in companies recommended in UWD, nor do we accept any compensation for such recommendations. The comments, graphs, forecasts, and indices published in UWD are based upon data whose accuracy is deemed reliable but not guaranteed. Performance returns cited are derived from our best estimates but must be considered hypothetical in as much as we do not track the actual prices investors pay or receive. Regular contributors and staff include Andrea Baumwald, John Burke, Marci Campbell, Selene Ceballo, Amber Dakar, Roberto McGrath, Maryellen Murphy, Jennifer Newman-Amos, Adam Shafer, Marty Sleva, Julie Trudeau, Jill Umiker, Leslie Underwood and Michelle Zausnig.
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