How to lose all your money in government bonds

Dateline: Prizren, Kosovo

When asked the secret to becoming a millionaire, Virgin founder Richard Branson once quipped, “start as a billionaire and buy an airline”.

Buying government bonds in 2014 is a great way to do exactly the equivalent, making your money vanish into the greedy paws of your favorite congressman.

Here in Kosovo, corruption and governments imposing tyranny on people and destroying opportunity is the usual. In fact, they have even erected a statue of the consummate scam artist and former US president Bill Clinton to honor the nature of government.

Although historically, a US bond investment was as sure a thing as the sun rising tomorrow, today you have to consider the fact that by doing so, you are investing your money with a criminal organization that has proven its instability for several decades now.

Let’s take a look at how turning your money over to this band of criminals could lead to losing it all.

1. The value of US government bonds is at the mercy of The Federal Reserve.

This is the tiny group of elite bankers that get to decide what happens to interest rates. These free market wreckers may one day decide to “put the brakes” on the economy, and increase rates. When rates go up, bond prices go down. Guess what happens to that “sure thing” bond that you invested a nice chunk of money into? The value plummets.

Unless you want to wait out the years for the maturity date to come along, you will find that these banksters have just zapped your money with their abuse of power.

2. Inflation will kill you.

At the end of 2014, the US debt is expected to reach $21 trillion. Although most Americans have been hearing about high debt levels for decades, and the guys running the show continue to have us believing that “deficits don’t matter” (in the words Dick Cheney), eventually, the chickens must come home to roost.

In other words, the government at some point in time will be forced to inflate or die.

That means they will attempt to print their way out of debt. This will cause massive inflation and the loss of your investment. “Quantitative easing” may sound easy to the ears, but it will go down in history as the policy that magically made the citizens’ money vanish into thin air.

To put it more simply, suppose that an investor earns a rate of return of 3% on a bond. If inflation grows to 4% after the bond purchase, the investor’s true rate of return – because of the decrease in purchasing power – is -1%. NEGATIVE one percent. And negative is never good.

So even mild inflation can make your bond investment go poof!

3. Default is absolutely a possibility.

Just like the fact that house prices can go down, corporations and yes, governments can default on the interest or principle due to the investor. The “full faith and credit of the US government” has held up in the past.

But how can this be counted on to be the case forever and ever?

Believing that is believing a fairy tale. Let’s look at Puerto Rico and a recent example of a default that lead to a famous boxer losing all of his money in government bonds.

Felix Trinidad Jr., a national hero in Puerto Rico, invested $63 million into government bonds. Then a few years later, the global economic downturn hit and, guess what happened? His bonds were essentially worthless.

Think it can’t happen where you live in The Land of the Free?

Think again!

In 2011, S&P downgraded US credit levels from AAA to AA+. Even more importantly, S&P also put the new grade on “negative outlook,” meaning the U.S. has little chance of regaining the top rating in the near term. Do you still have full faith in this organization?

4. The bond market is becoming increasingly socialist/nationalized.

Hint: This is NOT good for your investment.

The Federal Reserve, as of August 2013, owned 31% of the Bond market. As you can see in the chart above, this situation is getting progressively worse. What do you think will happen as the Fed continues to take more of the market away from the hands of investors? Game over for the US dollar, and “faith” in the system.

5. The US bond market is a Ponzi scheme.

Rather than being a safe haven, the system is built on mounds of debt that cannot be paid back. They are counting on creditors to loan back the money to repay the debt. This is no different from the position Greece was in a few years ago. Does anyone remember how things panned out in Greece?

But it can’t happen here… right?

History shows that you can only keep a ponzi-type scheme going for so long. If you think it can’t happen here, if you think that “full faith” in governments means anything, or if you think that Obama’s latest “MyRA” plan is your ticket to a safe investment, you may want to take the faster route to losing all your money – burn it.

At least the criminals won’t be able to get to it and do dastardly things with it that way.

Government bonds may have been your grandparents’ idea of a safe investment, as reliable as gravity, or a job at the factory.

While physics hasn’t changed since then, the US economy has changed drastically, and following what was considered wisdom in the past can lead to wealth destruction, as the criminals-in-charge shrug their shoulders and move on to the next way to take all of your money.