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The Jason Hartman Foundation > Blog > Blog Articles > America Ready to Default? > The Young Wealth Show

The Young Wealth Show

America ready to default? The word "default" can send a little shiver of fear down the spine of even the most fearless citizen, and it's hard not to heave a little sigh of relief when you discover it's someone else and not you. But you could do absolutely everything correct in your financial dealings and still end up feeling the bite of a default, thanks to your favorite Uncle Sam. We hear the fearmongers in the media every day talking about how only a thin sliver of solvency separates the United States from bankruptcy. Which begs the question, what will it look like when the sliver disappears? How exactly does a country defaulting on its debt affect the man in the street? Unfortunately, there's a good chance we're about to find out. First we should point out there there is one teensy tiny factor in our favor which might prevent a Weimar-esque sprint into hyperinflation, and that's that we still hold the world's reserve currency, though it's anyone's bet how long that will be the case. Let's check on a recent quote by Bill Gross, Chief Investment Officer of PIMCO, the world's largest bond fund. Gross is personally responsible for $1.2 trillion worth of assets and had this to say: "I am confident that this country will default on it's debt." Not much wiggle room there. He IS confident we WILL default. Gross has been busy getting PIMCO out of treasury bonds and thinks that unless Social Security and Medicare aren't reformed substantially, and quickly, the default is a done deal. Gross went on to say the default was already underway to some extent. Here's how he explained it. "Not in conventional ways," he said, "but by picking the pockets of savers." He says the government will pick your pocket through "inflation, currency devaluation, and low to negative real interest rates." That's is why it's dangerous to be a saver right now. Low interest interest rates paid on treasury bonds and bank certificates of deposit end up actually costing you money by the time inflation is figured in. If Gross is taking his money out of assets backed by the "faith and credit" of the United States government, where is he putting it? Mortgage-backed bonds! At least there's a real asset somewhere on the other side of all that paper. The Young Wealth Team

The Young Wealth Show

Published April 2, 2011 at 128 × 128 in America Ready to Default?.

Here’s a piece of advice young investors should internalize early – like right now. Are you ready? You can not, will not, shall not get rich quick. If someone approaches you with a line about how they can take your pitiful CD money earning 4% and turn it into a 75% virtual money machine, you should be all over that, right? No! Not only “No!” but “Hell no!” If you think that kind of guaranteed return is legitimate, you need to seriously check where your head is at, because it must be some kind of crazy place. Why does a line like that appeal to young investors? Easy. Because it feeds a very natural human trait called greed; the desire to make something from nothing and do it quick, then head to the beach for the rest of their life. Adults in the 18-25 age group are often especially susceptible to these come-on lines from fraudsters at the very point in their financial development when they should be holding onto what they’ve got with both hands. Read the following example from YoungMoney.com:

A defendant in Florida, headed an investment fraud business which took in money from more than 1,500 victims throughout the United States and Canada. In 2006, the defendant pled guilty to failing to file a federal income tax return and various mail and wire fraud charges. The perpetrator and another individual formed Pacific Achievements International (PAI) and used PAI to solicit investment funds, primarily through the internet. Based upon various false promises, investors transferred more than $13 million into PAI bank accounts in Oregon, Washington and Florida. Individuals were led to believe that for every $5,859 invested, they would see a return of $9,720 within three weeks; and they could earn more than $1 million per month thereafter. As with most investment fraud cases such as this, the perpetrators used a ponzi scheme. They took money from late investors to pay early investors so that it appeared that PAI was successful. The defendant and another PAI promoter diverted more than $2 million from investors to fund their lavish lifestyle. For his crimes, the defendant was sentenced to six years in prison and ordered to pay over $8.7 million in restitution to the victims.

And this kind of stuff happens every day. Don’t be one of the young investors who falls for this kind of scheme. Stay alert, stay real, and stay in control of your money. The Young Wealth Team