Investor Warning: Don’t be a Victim in This Financial Scam

Insolvent trading is unlawful in most developed countries. If found guilty, company directors face severe legal and financial penalties.

Yet the legal system has no such deterrents for politicians and central bankers who know their country is insolvent yet continue to raise capital (via the issuance of Government Bonds) from unsuspecting investors.

Greece’s ruling class employed Goldman Sachs to ‘cook the books’ so they could meet the financial conditions of the Maastricht Treaty and join the European Union.

Eligibility to the EU bestowed on Greece a financial credibility it could never have earned independently. The consequences of Greece’s deception have been well chronicled.

The politicians and bankers who organised this sham are not rotting in a prison cell. They are far too busy organising their winter vacations at St Moritz. Meanwhile the citizens of Greece have been forced to sell their possessions to live.

It’s for this reason a wise man once said, ‘Both politicians and nappies need to be changed often and for the same reason.

Greece is not an isolated case, it just happens to be the most glaring example of how bankers and politicians conspire to profit (professionally and financially) at the expense of the masses.

The same suspects are up to their eyeballs in creating the biggest bubble in financial history. The bursting of this latest bubble is destined to make the GFC look like a mere hiccup.

Investors concerned about sustainability of gains in the share, property and commodity markets are buying into the perceived safety of government bonds.

The demand for government bonds issued by major countries (US, Japan, UK and Germany) has pushed interest rates on these bonds to their lowest level in 200 years (this is not a typo).

The following chart on 10-year US Treasury bonds shows how rates have fallen from around 16% in the early 1980’s to the current 2.7% (rates reached a low of 1.6% in May 2013). As the 1970’s runaway inflation was tamed, interest rates abated in the 1980’s and 1990’s. This was a normal function of markets.

However in recent years, the Federal Reserve has largely manipulated lower rates. Suppressing cash rates to nearly zero has impacted rates all along the yield curve.

Governments have never before had access to debt funding at these bargain basement rates.

click to enlarge

Naturally spendthrift governments, eager to fund their ballooning budget deficits have taken all the cheap money they can get their hands on.

The concept is simple. If interest rates are high you borrow less. If interest rates are low you borrow more.

The following example illustrates this point:

When interest rates where 15% the US Government debt was approx. $1 trillion (see chart below). The interest cost was $150 billion.

Interest rates falling to 1% (the average interest cost of three month, one year, 10 year and 30 year bonds) has enabled debt to rise to $16.9 trillion. The interest cost is only slightly more at $169 billion. What a bargain – a mere $19 billion per annum in interest to access $15.9 trillion of pork barreling.

The following chart shows how US debt has soared since 1980 and is predicted to continue rising (based on forecast deficits) until 2020 – this is why the debt ceiling debate is academic. The US is hooked on debt and must keep raising its credit limit. Whether it’s this month, this year or next, it will be raised.

Clearly servicing a debt of this magnitude is only sustainable while interest rates are so low. When interest rates rise, this is going to get real ugly.


The phrase Potemkin villages was originally used to describe a fake village, built only to impress. The phrase is now used, typically in politics and economics, to describe any construction (literal or figurative) built solely to deceive others into thinking that some situation is better than it really is. It is unclear whether the origin of the phrase is factual, an exaggeration, or a myth.
– Wikipedia

The debt (private and public) embedded in the US financial system has created a fake economy. Financing lifestyles and entitlements from ‘thin air’ is a fraud.

Wall Street has endorsed this deceit. The S&P 500 and Dow Jones both reached record nominal highs in recent months.

Mainstream media as usual beat the drum about the new highs in the US share market. In my opinion it is a Potemkin Rally built by Ben Bernanke to impress gullible investors.

I spoke recently with a senior executive of a large SMSF administrator. He mentioned they were fielding an increasing number of enquiries from clients looking to switch from cash to shares.

When the public starts to become restless due to ‘noise’ created by vested interests (note that most commentary is from institutional economists and share brokers) it’s a good contrarian indicator telling me to be very wary.

From my experience, whenever public interest is aroused in a particular asset class, it invariably leads to a fall.

While the media and the industry cheerleaders attempt to convince the masses this is the start of a great bull market, the truth is the market has been ‘pumped’ higher with an abundance of cheap printed dollars.

The Dow has more than doubled since March 2009, yet the US economy has grown by just 7% in real (inflation-adjusted) terms. Something is not quite right here.

If we look back at the economic data of the previous Dow Jones high in 2007 and compare it with today, you really have to scratch your head and wonder how this trickery can be dressed up and paraded as the real deal.

Economic Indicator



US Citizens receiving food stamps

26.9 million

47.7 million

US Public Debt

$9 trillion

$16.7 trillion


7.2 million

12.3 million

US Government Annual Budget Deficit

$162 billion

$1.09 trillion

Real (after inflation) GDP Growth


0.1% (and this anemic growth includes the $1 trillion budget deficit spending)

US Federal Reserve Balance Sheet

$890 billion

$3.1 trillion (the increase is due to an additional $2.2 trillion in printed dollars)

On every single reading the numbers have deteriorated, yet the market rejoices.

If these were a patient’s vital statistics and the treating doctor and medical staff all declared, ‘the patient is recovering well‘ you would sue them for medical malpractice.

Don’t be fooled by the Fed’s Potemkin policies. Like the fake settlements the Russians built to impress Empress Catherine II during her visit to war-torn Crimea, there is little of real substance behind them.

If a company’s annual report produced this deliberate deception the relevant watchdog would haul the directors before the courts.

Sadly as we have seen in Europe, Japan, the US, UK and Australia, politicians and central banks are a law unto themselves.

They can lie, manipulate, engage in counterfeit activities and fabricate data all in the name of economic ‘stability’.

The only stability these charlatans have managed to create since the GFC is instability.

When this house of cards collapses, the architects of this massive Ponzi scheme will sail off into the sunset courtesy of their taxpayer-funded pensions and travel entitlements.

Don’t look for fairness in an unfair world. It does not exist.

The best you can hope for is to avoid becoming a victim of this giant financial scam. Stay cashed up ready to buy heavily discounted assets from those gullible enough to believe these frauds.


Vern Gowdie+
for The Markets and Money Australia

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Vern Gowdie has been involved in financial planning since 1986. In 1999, Personal Investor magazine ranked Vern as one of Australia’s Top 50 financial planners. His previous firm, Gowdie Financial Planning was recognized in 2004, 2005, 2006 & 2007, by Independent Financial Adviser (IFA) magazine as one of the top five financial planning firms in Australia. He has been writing his 'Big Picture' column for regional newspapers since 2005 and has been a commentator on financial matters for Prime Radio talkback. His contrarian views often place him at odds with the financial planning profession. Vern is is Founder and Chairman of the Gowdie Family Wealth advisory service, a monthly newsletter with a clear aim: to help you build and protect wealth for future generations of your family. He is also editor of The Gowdie Letter, which aims to help you protect and grow your wealth during the great credit contraction. To have Vern’s enlightening market critique and commentary delivered straight to your inbox, take out a free subscription to Markets and Money here. Official websites and financial eletters Vern writes for:

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