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Posted: Feb 23 2010 By: Jim Sinclair Post Edited: February 23, 2010 at 1:56 pm

Filed under: Jim's Mailbox

Dear Jim,

The recent revelation from the Foundation for the study of cycles shows the massive loss of purchasing power of the US dollar begins in the third quarter of this year. We have about 3 months to prepare for this, if we believe this likely to happen. The US dollar, according to the foundation, will skid until 2012.. Others maintain it will go the way of all paper currencies to its intrinsic value, which is nothing.

Comment from a Porter Stansberry newsletter recently….his observations should give us pause to think more than just a little.

Porter comment: The most important thing to realize about a currency crisis is the U.S. dollar will lose a tremendous amount of its purchasing power.

You might think that’s great if you’ve got lots of U.S. dollar obligations – like a mortgage. But the reality is, the consequences of this kind of massive debt repudiation can’t be predicted… and will be extremely bad. Extremely bad.

For example, the economy will slow tremendously because of the disruption to the currency. Common services you take for granted today will become unavailable. Your credit cards will not work. There won’t be gas at the gas station. The grocery store will be empty. State and local employees won’t be paid on time – and may stop working. So while you might think there’s a silver lining to a currency crisis, there’s really not. The consequences of such a crisis will far outweigh any of the short-term profits you might think you’ve accrued.

Yes, technically, the smart thing to do now would be to borrow as much money as you can (at fixed interest rates) and then use the money to buy hard commodities – like gold, silver, oil, and farm land. Someone with a large income or a lot of wealth might be able to pull off this trade. My friend Doug Casey, for example, is essentially making this trade via large land holdings in Argentina and big investments in cattle. But Doug isn’t borrowing any money. And here’s why you probably shouldn’t either: You can’t know how the rules will change – but you can be sure they will.

For example, in the last big currency collapse I witnessed first hand (in Argentina in 2001/2002), the government simply closed all of the banks and forced a conversion of U.S. dollar savings into pesos. The government literally stole billions of U.S. dollars from its citizens. But that could never happen here, right?

Wrong. It already happened once in 1933. FDR stole about $250 billion worth of gold during the Great Depression. And discussions are underway right now in D.C. about taking all 401(k) savings and "exchanging" them for new government securities to "insure" the retirements of the American people. If the banks are all going bust because they can’t afford the fixed-rate loans they made before the crisis, what’s to say the government won’t simply allow the banks to unilaterally change interest rates on all of their existing loans? It could surely happen.

The point is, we’re facing a major, major crisis. I can’t tell you when the walls will come crashing down, but I can tell you it will happen at some point soon. Our government is bankrupt. Eventually that’s going to be very, very bad for anyone who isn’t prepared to get out of harm’s way. The best advice I can offer you to survive is:

1. Hold gold bullion in a safe and secure place. Don’t tell anyone else you own it or where you’ve hidden it. (Personally, I’m fond of self-storage units outside the U.S.)
2. Do your best to get out of debt. If you can’t, make sure all of your obligations are in fixed-rate, nonrecourse loans. If possible, borrow from a foreign bank.
3. Don’t keep a penny saved in paper currency.
4. Own real estate – particularly productive real estate, like a farm. If possible, buy the same outside the U.S.
5. Get a second passport. It’s not as hard as you might think. If you’ve got $250,000 to spend and know the right people, you can even get a diplomatic assignment from another sovereign government, making you nearly invulnerable to the risk of currency/travel restrictions common during a currency crisis.
6. Stockpile anything you can’t live without – food, water, ammunition, medicines.

I’m sure this sounds crazy to most of you. But think about this. In Argentina, the banks were closed for six weeks. There was no way to get cash. There was no way to use credit cards. People were selling their real estate for 10 cents on the dollar – but only if you had U.S. dollars. That’s how desperate they were for money. And when the banks re-opened, 75% of everyone’s cash savings had been stolen by the government. Plus, prices on every kind of basic commodity had tripled. The middle class was completely wiped out – and may never recover.

That will happen here at some point. I promise. And the way things are going, it will happen sooner than anyone expects.

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