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Date: June 6, 2008
Subject: G&G Financial T.O.W. - "The Apocalypse of Debt"

This is
G&G Associates
Tax & Financial Consulting Services
e-Newsletter

"The Apocalypse of Debt"

If you only read one newsletter of the year...this is the one to read!

A second “sub-prime” debt bomb is on the verge of exploding – an economic reality no one will admit virtually guarantees it. And for those who don't mount a defense, it could...
• strip you of your financial sovereignty
• crush your investments
• wipe out your savings
• mortgage your retirement and...
• leave you penniless and indebted for the rest of your life...
Skyrocketing consumer debt has spawned a financial “super-bubble.” One that threatens to unleash a $16.2 trillion financial fire sale. One for which there will be no bailouts. One that will shatter the U.S. banking and financial system and your investments with them.

Read on to learn what has caused it and why everyone is powerless to stop it.

Building a House of (Credit) Cards

Years ago there was a stigma associated with debt. When you went to the bank for a mortgage, you took proof of income, letters of reference and a hefty down payment. Once you were approved, you put all your resources into paying off your obligation. And when you paid off the loan you threw a "mortgage burning" party to celebrate being debt free.
Nowadays most consumers don't think twice about being in debt. And banks don't think twice about letting them pile it up. And between them, they've created a massive financial danger for the rest of us.

How can someone else's debt create such a dire threat to you?

Today over 181 million Americans carry a debt balance on their credit cards. Fifty-two million of them paying double digit interest on balances over $10,000. The same Americans who managed to save an average of $142 each in 2007. The average indebted family now allocates over one dollar in five of its monthly income to pay their credit card bills. Handing over 20% of their take home pay to banks and credit providers while only saving a ridiculous 1.2%.

The Hardship of Easy Money

This massive migration from cash to credit has created two alarming dangers that threaten us all. First, credit dollars create an invisible, uncontrolled surge in money supply. Inflating the price you pay for everything. From toothpaste to televisions.
And that's not the half of it. Rampant charging has lead to a massive bubble of CONSUMER debt. At the end of 2007, there was over $941 billion of revolving unsecured debt outstanding – nearly a TRILLION dollars! That's enough in personal debt to buy yourself 4,221 Boeing 777 jumbo jets!

This trend of soaring prices and mounting debt can't be reversed. By driving consumer costs higher and higher, credit dollars create an insatiable need for themselves. Just so consumers can keep pace with rising prices they create.
Worse, it cannot be sustained.

The Black Hole of Debt Threatening Your Wealth...Even if You're Debt Free

Banks have been addicting consumers to debt for over a half century. They've done it with wanton disregard for the well being of their victims. AND the economy. They do it because the lure of the bottom line is monstrous. Banks' portfolios are valued based upon how much credit they have outstanding. How much money they're owed. This gives them incentive to get owed plenty.... And to charge a lot in exorbitant interest rates ranging from 10.9% to 19.9% and higher.

It has concentrated a titanic amount of debt within a tiny financial circle of already teetering banks. Fully 88% of that $941 trillion in debt is on the books of only 10 U.S. banks. What do you suppose nearly $1 trillion in consumer debt is worth once it all gets paid back?

Consider this... The average credit card balance outstanding is $5,200-average interest rate is approximately 14%. If a consumer paid back that debt at a typical 2% minimum payment, it would take 356 months – over 29 YEARS – to fully repay and would generate $6,835 in interest – 131% of the original loan! {Do you fall in this category?}
That's $1.2 trillion IN INTEREST OWED on the current amount outstanding. But there is a reality about these banks' “wealth” that most people never consider.

While Banks Pile Up “Imaginary Profits” - You Can Earn REAL Returns Up to 185%

All that “wealth” isn't real. The entire process of making money by lending money hinges on borrowers ability to repay debts. An assumption too often taken for granted. One that drives banks to extend credit to disastrous levels. The sub-prime mortgage crisis is a perfect example. Banks gambled on the repayment of $900 billion of mortgage debt – debt secured by over-inflated home prices – and lost. And what has been the result?

Banks, brokers and insurers have since disclosed upwards of $245 billion in write downs globally. And it is now estimated that number will rise to $600 billion before it's over!Nearly $2 trillion of investor capital drained from the stock market in an instant.
And now this massive bubble of CONSUMER debt is on the verge of collapse. Another trillion dollar hit that will devastate financial markets. Banks reliance on a continued stream of payments is like a Ponzi scheme doomed to failure.

But as levels of debt and imaginary wealth expand, informed investors who seek out real money assets, clean up. Like those who recently sunk their money into precious metals and their related mining companies. Investments that have returned 59%, 67%, 78% 136% and an incredible 185%.

For more details on investments such as these, contact G&G Associates to make sure your portfolio is geared to follow these and other moves over the next couple of years as the US economy struggles to rebound from this current crisis. Don't let your portfolio continue to roll down hill when you have the opportunity to reverse this slide.

The Shameful Truth No One Will Admit...

This massive build up of debt has already caused price inflation to soar for both borrowers and non-borrowers alike. And increased prices have drained consumers’ savings forcing the need for still more borrowing. For every $1,000 of disposable income, Americans now spend $1,005! The mortgage burning party has been replaced by the “refi-conga line.” Tap any available home equity and turn it into cash. But in recent years, this party has taken a twist.

Consumers have begun refinancing in excess of the unpaid balance of their mortgages – with what are known as “cash-out” refis – loans that drain all the equity from their homes and more. Freddie Mac reported that fully 35% of refinancing in Q2 2007 was cash-out refis. They used the extra money to pay for luxuries they couldn’t really afford – Cars, appliances, vacations...and other debt. Between 2001 and 2006, homeowners cashed out $1.2 trillion in home equity largely to pay for credit card debt. And now with housing markets collapsing, that stream of capital is drying up. And a startling fact has become apparent – CONSUMERS ARE BROKE. By burying their customers with debt, banks have created a “subprime” bubble of CONSUMER DEBT that could be the undoing of the entire U.S. economy.

Unless you take immediate steps align yourself with the savviest of investors who knows...

Pools of Blood Mean Rivers of Cash – How to Capitalize TWICE on Your Investments

Anyone can make money in a bull market. But this group knows where to put their assets for maximum protection and huge returns. Especially when disaster strikes.
Amazing investments that not only beat the market. But that will compound your earnings – BEFORE dividends. Investments that take advantage of exchange rate fluctuations to protect and add to your income.

The Epidemic Impact of Excessive Debt...

Consumers are already strained. A recent study by the University of Central Florida found “56 percent of low-income respondents said they could not pay their bills if they missed one month’s pay.” Not exactly big news. But what was truly shocking was that “38 percent of middle-income respondents” and “24 percent of upper-income respondents made that same claim”!

Forget vacations and new cars. Consumers can't pay for the most basic necessities. Utilities companies from Nevada to New York to Boston are reporting an increase in customer payment delinquencies from 6% to 50%. Gas and food prices are skyrocketing beyond consumers’ abilities to afford them. And living on the edge of solvency has fueled this spiral of debt further. Forcing consumers to turn even more to their plastic. To dig themselves still deeper and deeper into debt. And as this debt, compounded by sky-high interest rates, begins to accelerate, it won't be long before consumers can no longer even afford the interest.

...And The Consumer Default That Can't be Avoided

A consumer credit default is already underway. And the results could be like a 1-2 sucker punch to the U.S. economy. First banks will take the hit as they have to start writing off hundreds of billions in bad debt. Citigroup has already set aside $2.24 billion in “loan-loss” reserves because of increasing “consumer credit costs.” American Express has boosted its loss reserves by 44%. Capital One, Bank of America and Washington Mutual have all followed suit.

But what they're setting aside is chump change against the trillion-plus dollar tidal wave of defaulting debt they will be facing. And as the defaults mount, a consumer credit crunch will begin. A “reverse debt spiral” that will leave consumers more “cash” strapped than ever before. And set off a collapse in the banking industry and the economy that could literally wipe out millions of average investors.

Opportunities for 13%, 20%, 796% or 1794% Gains
While Cash-strapped Consumers and Businesses Bail

But it will be the second shot that does the real damage. Consumer spending accounts for over 70% of GDP growth. Already struggling to afford the most basic necessities, consumers will look for money anywhere they can. That's when the fire sale starts.
Unwilling or unable to extend their credit, they'll start to liquidate. Dumping whatever meager assets they may have. Stocks, bonds, funds. Anything liquid. Just to pay the bills. Markets will collapse under the panic of 100,000,000 debtors scrambling for the door. A crumbling economy that will cause a dollar sell off of massive proportions. And it will get worse.

Already consumers' debt as a percentage of disposable income is at its highest levels in history. How long before it all finally collapses? And what will be the trigger?
The continued rise in energy prices? More soaring food prices? A further squeeze in the employment rate that leaves another 100,000 workers without a paycheck and unable to find work? Pick one...but there are opportunities even with a plummeting currency.

Apocalypse #1: The Great Depression

In 1923 the U.S. economy was booming. A mighty U.S. dollar enjoyed reserve currency status when the Fed unilaterally lowered U.S. interest rates. Not once but twice creating extremely cheap money. Consumers jumped on the opportunity. The twenties began roaring and for years everyone bought everything on credit, from radios to cars. Eventually this margined buying spread to financial markets and stocks. Investing on margin in the stock market became like getting free money. Margins were as low as 10%. That meant for a $1,000 down, you could borrow $9,000 from your broker and “own” $10,000 of stock. As long as shares moved higher, everyone got rich.

But then the party ended. Access to cash dried up as the Federal Reserve raised interest rates to defend its own sinking dollar. The result? With no cheap debt to inflate them, markets began to contract, finally collapsing under a wave of panic selling by over-leveraged consumers. But this was only the beginning.

Credit dried up as losses mounted. A mountain of unserviceable consumer debt began to default. The crisis spread to the banking and business sectors. Unable to sustain reserves, banks began to fail – 1,198 in 1930 alone! Cash fled the market and consumer spending skidded to a halt. The price of everything fell in a deflationary spiral. Unemployment skyrocketed. With the eruption of this consumer bubble of debt, the economy contracted an average of 7.4% annually from 1930 through 1934 – nearly 30% in total! Ultimately the stock market lost 89% of its value. It took 22 years – a full generation – for the market to recover. It's been nearly 80 years since this catastrophe. Many people think such a collapse is impossible today. But modern times has seen such a calamity.

Apocalypse #2: Japan

A nearly identical catastrophe occurred in Japan in 1989. In preceding years, rampant credit had created a boom in real estate. Between 1987 and 1989 real estate prices nearly doubled averaging 25% gains each year. Banks were lending in excess of 100% of the value of the real estate. By 1987, Japanese companies were making over 50% of their profits from speculative investments in stocks and real estate.

The Nikkei stock index over doubled from 9,000 in 1983 to 20,000 in 1987. And then nearly doubled again by 1989! Incredible profits – all built on a massive foundation of leveraged debt. And again when the easy money dried up the results were catastrophic. In 9 months the Nikkei collapsed 48%. Land prices fell 5% by mid-1992, 33% by 2000 and kept on falling until bottoming in 2006 after losing a full 70% in value.

By 1994, non-performing loans from Japan's 21 biggest banks and their affiliates totaled $400 billion. By 2000, 25,000 bankruptcies had ripped through the Japanese economy. Tokyo's banks began selling $20 billion in stocks of companies they were trying to support. Crushing the Nikkei a further 35% in the last 9 months of 2000. It only bottomed out 15 years later after losing an inconceivable 80.5%

Apocalypse #3: Coming to an Investment Near You

Both of these meltdowns resulted from a capital crisis laid squarely on CONSUMERS' shoulders. When the free spending ended, financially drained consumers – those hurt the worst – panicked, tucked tail and ran. They stopped investing. Stopped spending.

In the 30's, life savings were stuffed in mattresses viewed as SAFER than banks. Near zero lending rates in Japan couldn't get consumers to spend a dime. And now with the U.S. barreling headlong into this next apocalypse, and consumers over a trillion dollars in the hole, panic will strike again. They'll stop spending. And the driving force behind 70% of U.S. growth will disappear.

Think about this. Between 2000 and 2004, GDP grew an average of 2.8% per year while real median income fell 2.9% Where did all the spending driving this growth come from? You got it. Debt!

And without consumer spending to drive growth, the U.S. economy and financial system will experience a similar fate. One that will decimate investors no matter what their personal credit looks like.

Free Yourself From this Massive Threat

But when this endgame of debt begins to play out, you don't have to be chained to it. You can gain access to investments that have made an average of 29.4% a year for the past five years compared to an anemic 4.7% returned by the S&P 500 or better yet your 401K plan. During a time when most investors were just getting back to even from the last market collapse. Free Yourself From this Massive Threat and remember, the current crisis has only begun. The coming shock wave promises to be far worse than even the sub-prime bubble.

Thanks

Gary Gray
Tax & Financial Consultant, RFC
G&G Associates
877-817-6031 toll-free
866-361-3872 toll free fax
www.gngassociates.net

"Those who do not learn the lessons of history indeed are condemned to relive them."

LEGAL NOTICE: This work is based on SEC filings, current events, interviews, corporate press releases and what I've learned as a financial consultant. It may contain errors and you shouldn't make any investment decision based solely on what you read here. It's your money and your responsibility. G&G Associates expressly forbids from having a financial interest in any security that is recommended to our subscribers

 

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