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Wall Street Journal’s Andy Kessler save U.S. bonds and bills are safe. He’s nuts.

Posted by John T. Reed on

In today's WSJ, Andy Kessler says the stock market is acting as if "Assets go up; cash is for losers."

My version: assets that are not denominated in dollars can go up, down, or sideways. Cash or other assets denominated in a currency that hyperinflates become worthless.

You need a diversified portfolio of non-dollar-denominated assets including some liquid ones to buy food, fuel, and medicine.

Later in the column, Kessler says, “Low-yielding U.S. Treasury bills and bonds are safe because they are backed by the US government, by cash flow of tax dollars and by the country’s assets (think land not Fort Knox).”
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Oooh. Andy Kessler is a famous WSJ columnist and I am a mere obscure author of a couple of dozen financial books, but I must say that in that sentence, Mr. Kessler does not know what the hell he is talking about. And I have sent him a copy of this post so he can enlighten me if he wishes.
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1. U.S. government bonds are NOT safe from inflation or hyperinflation. Not even Treasury Inflation-Protected Securities (TIPS)—which Kessler does not mention—are safe from inflation. How so? Read the fine print of how they work. I did.

Basically, they respond way too slowly to protect you. There is something like a six-month to nine-month delay between the adjustment you get and the time period that adjustment is based on.

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Like you get a bump up in your principal amount in January to match the inflation rate from the second quarter of the prior year. Furthermore, if I recall correctly, you have to pay income taxes on the inflation adjustment NOW even though you do not get the money until the bonds mature or some such.
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TIPS are like an abortion clinic with a 17 month waiting list. . But again, Kessler did not even mention TIPS. He was talking about bonds and bills that DO NOT ADJUST AT ALL FOR INFLATION!
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2. He says they are backed by the US government. Uh, the 1930s are calling. They want their credit rating back. When FDR became president, the U.S. national debt to GDP ratio was 17%. It is now 130%, the highest ever.
https://www.usdebtclock.org.
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Standard & Poors lowered the U.S. government’s credit rating from AAA to AA+ on 8/5/11/ Treasury Secretary Geithner was outraged and had the DOJ attack S&P. Moody’s and Fitch kept the rating at AAA apparently because they did not want to be attacked by DOJ. They were not.

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Is AA+ the correct rating? Hell, no! It is way too high. But they are afraid to report the accurate rating for fear of such a messenger being shot.
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You can see how bad the U.S. government’s credit is by removing nine zeros from the U.S. government’s balance sheet and income statement. Our national debt is now $28T according to the debt clock I linked to above. That is $28,000,000,000,000. By removing the nine zeros to the right, I make it look like a young adult’s financial statements.
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Debt $28,000

Annual income $3,500
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Would you feel safe lending $28,000—unsecured, no mortgage on a house—to a person whose annual income was $3,500?
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3. Kessler refers to the “cash flow of tax dollars.” That figure is on the same national debt clock: $3.5T. Furthermore, NONE of that money is available to pay down the national debt. Indeed, in the current fiscal year, we are spending $4.6 T of the $3.5 T we are collecting in taxes. And the House is about to add another $1.9 T to that national debt and deficit!
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4. Kessler says the $28T in national debt—$29.9 T after the House passes Biden’s spending bill, is secured by “land not Fort Knox.”
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The government has not let the public or even Congress see the gold in Fort Knox in many years. I personally actually DID see the gold in the Federal Reserve bank of NY basement. Although I made no attempt to match it to the amount it is supposed to be.
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I suspect Fort Knox is largely empty.
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So the federal government owns vast amounts of real estate. Therefore, Kessler tells us, no problemo. We can pay the about to be $30 T national debt by simply selling off federal real estate, right?
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I am surprised that Kessler has not yet learned to check such things before he puts them in the WSJ. I read and recommend the book the Coming Generational Storm by Laurence Kotlikoff and Scott Burns.
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As the title suggests, the “Greatest” Generation and the Baby Boomers have outrageously screwed younger people by piling all this debt on them, taking cruises with the money, then dying. Each tombstone of those two generations should be required to have “See you in hell, suckers” engraved on it.
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Kessler could also have Googled the value of all real estate owned by the federal government. .
https://www.bea.gov/research/papers/2015/new-estimates-value-land-united-states#:~:text=New%20Estimates%20of%20Value%20of%20Land%20of%20the%20United%20States%20(PDF)&text=Estimates%20suggest%20that%20this%201.89,held%20by%20the%20federal%20government.
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That U.S. government web site says the total value of all US government owned land is $1.8 T. Kessler graduated from Cornell and U of IL Urbana. I am not sure what math they teach there. But at MY alma maters—West Point and Harvard Business School—$1.8T is NOT enough to pay off $30T of debt.
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What is America’s creditors foreclosed on ALL the land in America—not just the $1.8 T of federal land but also your house and everyone else’s house and all farms, ranches, office buildings, apartment buildings, factories, parks, stores, everything owned by everyone. That would only yield about $23T at the foreclosure auction.
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In other words, if we gave the entire US real estate-wise to the owners of US government bonds, it would still not be enough to pay off the national debt. . The Coming Generational Storm book also refutes the other salvations from the national debt: illegals who pay tax but who do not get social security, technological break throughs, selling federal land.
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Reverting back to that nine zeros removed balance sheet and income statement:
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Assets: $1,800

Liabilities: $30,000

Net Worth: MINUS $28,200

Annual income: $3,500

Annual outgo: $6,500 
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And Kessler says the IOUs of this entity are “safe.”
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Not from inflation. Whether they are safe in ANY sense of the word is extremely dubious.
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In this column, Kessler says a couple times the phrase, “You have not seen a real bear market until you’ve lost 90% of your money.”
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In Germany and Austria in the early 1920S, or Zimbabwe or Argentina or Venezuela lately, you would RATHER lose 90% of your money, which is roughly the Great Depression stock market loss, than own the bonds of a hyperinflated currency nation.
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In hyperinflation, government bonds become WORTHLESS, not worth 10¢ on the dollar. The people who were hurt the worst in Germany and Austria were those who owned government bonds or annuities (like Social Security)—seniors and institutions and charities with endowments.
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https://www.johntreed.com/collections/john-t-reed-s-book-on-hyperinflation-and-depression/products/how-to-protect-your-life-savings-from-hyperinflation-and-depression
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How to Protect Your Life Savings From Hyperinflation & Depression 2nd edition book


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